Stock Analysis

We Like These Underlying Trends At Sunflower Sustainable Investments (TLV:SNFL)

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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Sunflower Sustainable Investments (TLV:SNFL) so let's look a bit deeper.

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. To calculate this metric for Sunflower Sustainable Investments, this is the formula:

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

0.072 = ₪26m ÷ (₪385m - ₪24m) (Based on the trailing twelve months to December 2020).

Therefore, Sunflower Sustainable Investments has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 3.3%.

Check out our latest analysis for Sunflower Sustainable Investments

TASE:SNFL Return on Capital Employed March 19th 2021

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're interested in investigating Sunflower Sustainable Investments' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Sunflower Sustainable Investments' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Sunflower Sustainable Investments. The figures show that over the last five years, returns on capital have grown by 82%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Sunflower Sustainable Investments appears to been achieving more with less, since the business is using 61% less capital to run its operation. Sunflower Sustainable Investments may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 6.2%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Sunflower Sustainable Investments' ROCE

In the end, Sunflower Sustainable Investments has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 53% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Sunflower Sustainable Investments does have some risks though, and we've spotted 2 warning signs for Sunflower Sustainable Investments that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.

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This article by Simply Wall St is general in nature. 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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