The Return Trends At Energix - Renewable Energies (TLV:ENRG) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Energix - Renewable Energies (TLV:ENRG) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Energix - Renewable Energies:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.029 = ₪107m ÷ (₪4.1b - ₪421m) (Based on the trailing twelve months to September 2021).

Thus, Energix - Renewable Energies has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.7%.

See our latest analysis for Energix - Renewable Energies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Energix - Renewable Energies' ROCE against it's prior returns. If you'd like to look at how Energix - Renewable Energies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 2.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 223%. So we're very much inspired by what we're seeing at Energix - Renewable Energies thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Energix - Renewable Energies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing: We've identified 3 warning signs with Energix - Renewable Energies (at least 2 which don't sit too well with us) , and understanding these would certainly be useful.

While Energix - Renewable Energies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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