Stock Analysis

Sunflower Sustainable Investments (TLV:SNFL) Might Have The Makings Of A Multi-Bagger

TASE:SNFL
Source: Shutterstock

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Sunflower Sustainable Investments' (TLV:SNFL) returns on capital, so let's have a look.

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. The formula for this calculation on Sunflower Sustainable Investments is:

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

0.022 = ₪16m ÷ (₪806m - ₪72m) (Based on the trailing twelve months to September 2022).

So, Sunflower Sustainable Investments has an ROCE of 2.2%. On its own that's a low return, but compared to the average of 0.9% generated by the Renewable Energy industry, it's much better.

See our latest analysis for Sunflower Sustainable Investments

roce
TASE:SNFL Return on Capital Employed March 7th 2023

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.

What Can We Tell From Sunflower Sustainable Investments' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 2.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Sunflower Sustainable Investments' ROCE

All in all, it's terrific to see that Sunflower Sustainable Investments is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 10% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Sunflower Sustainable Investments (including 1 which is potentially serious) .

While Sunflower Sustainable Investments may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're helping make it simple.

Find out whether Sunflower Sustainable Investments is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.