Returns On Capital Are Showing Encouraging Signs At Sunflower Sustainable Investments (TLV:SNFL)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Sunflower Sustainable Investments (TLV:SNFL) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sunflower Sustainable Investments:

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

0.0094 = ₪7.3m ÷ (₪871m - ₪93m) (Based on the trailing twelve months to March 2023).

Thus, Sunflower Sustainable Investments has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 3.1%.

Check out our latest analysis for Sunflower Sustainable Investments

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sunflower Sustainable Investments' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sunflower Sustainable Investments, check out these free graphs here.

So How Is Sunflower Sustainable Investments' ROCE Trending?

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 0.9%. The amount of capital employed has increased too, by 72%. So we're very much inspired by what we're seeing at Sunflower Sustainable Investments thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sunflower Sustainable Investments has. Since the stock has only returned 14% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

On a final note, we found 2 warning signs for Sunflower Sustainable Investments (1 makes us a bit uncomfortable) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.