There are a few key trends to look for if we are to identify the next multi-bagger. In a perfect world, we would like a business to invest more capital in their business, and ideally the returns from that capital increase as well. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. However, after investigation Bezeq Telecommunications from Israel (TLV: BEZQ), we don’t think the current trends fit the mold of a multi-bagger.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. To calculate this metric for Bezeq The Israel Telecommunication, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.19 = 1.9b ÷ (₪ 14b – ₪ 3.5b) (Based on the last twelve months up to March 2021).
So, Bezeq The Israel Telecommunication has a ROCE of 19%. In absolute terms, this is a satisfactory performance, but compared to the telecommunications industry average of 9.6%, it is much better.
Check out our latest review for Bezeq The Israel Telecommunication
Above you can see how Bezeq The Israel Telecommunication’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.
What does the ROCE trend tell us for Bezeq The Israel Telecommunication?
Things have been fairly stable at Bezeq The Israel Telecommunication, with its capital employed and returns on that capital remaining roughly the same over the past five years. It’s not uncommon to see this when looking at a mature, stable company that isn’t reinvesting its profits because it’s likely past that phase of the business cycle. So don’t be surprised if Bezeq The Israel Telecommunication doesn’t become a multi-bagger in a few years. With fewer investment opportunities, it makes sense that Bezeq The Israel Telecommunication paid 59% of its profits to its shareholders. Since the company does not reinvest in itself, it makes sense to distribute a portion of the profits among the shareholders.
The result on Bezeq The ROCE of Israeli telecommunications
In summary, Bezeq The Israel Telecommunication does not increase its profits but generates stable returns on the same amount of capital employed. And in the past five years, the stock has lost 42%, so the market doesn’t seem overly bullish that these trends will strengthen anytime soon. Overall, we’re not too inspired by the underlying trends and think there might be more chances to find a multi-bagger elsewhere.
One more thing, we spotted 2 warning signs opposite Bezeq The Israel Telecommunication which you might find interesting.
While Bezeq The Israel Telecommunication Does Not Achieve the Best Performance, Check Out This free list of companies that generate high returns on equity with strong balance sheets.
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