Amos Luzon Development and Energy Group (TLV: LUZN) does what it takes to increase its share price


If we are to find multi-bagger potential, there are often underlying trends that can provide clues. A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. So on that note, Amos Luzon Development and Energy Group (TLV: LUZN) looks pretty promising when it comes to its ROI trends.

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 Amos Luzon Development and Energy Group, here is the formula:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.091 = ₪ 84m ÷ (₪ 1.6b – ₪ 656m) (Based on the last twelve months up to March 2021).

Therefore, Amos Luzon Development and Energy Group has a ROCE of 9.1%. On its own, this is a low return on capital, but it is in line with industry average returns of 9.3%.

See our latest analysis for Amos Luzon Development and Energy Group

TASE: LUZN Return on capital employed on July 4, 2021

Although the past is not representative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to delve into the earnings, revenue and cash flow history of Amos Luzon Development and Energy Group, check out these free graphics here.

What does the ROCE trend of the development and energy group Amos Luzon tell us?

We are delighted to see that Amos Luzon Development and Energy Group is reaping the rewards of its investments and is now generating pre-tax profits. The company was making losses five years ago, but is now gaining 9.1%, which is a sight to behold. On top of that, Amos Luzon Development and Energy Group employs 69% more capital than before, which is expected of a company trying to achieve profitability. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, two common characteristics of a multi-bagger.

In another part of our analysis, we noticed that the ratio of the company’s current liabilities to total assets decreased to 42%, which means overall that the company relies less on its suppliers or its short-term creditors to finance its operations. This tells us that Amos Luzon Development and Energy Group has increased its returns without depending on the increase in its short-term debt, which we are very happy with. However, current liabilities are still at a fairly high level, so just be aware that this can come with some risk.

What we can learn from the ROCE of Amos Luzon Development and Energy Group

To the delight of most of the shareholders, Amos Luzon Development and Energy Group has now returned to profitability. Given that the stock has returned 402% to shareholders over the past five years, it looks like investors are recognizing these changes. So, given that the stock has proven to have some promising trends, it is worth doing more research on the company to see if these trends are likely to continue.

One last thing to note, we have identified 4 warning signs with Amos Luzon Development and Energy Group and understanding them should be part of your investment process.

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

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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