Investors Met With Slowing Returns on Capital At Gilat Satellite Networks (NASDAQ:GILT)
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Gilat Satellite Networks (NASDAQ:GILT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
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 Gilat Satellite Networks, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.094 = US$28m ÷ (US$427m - US$127m) (Based on the trailing twelve months to December 2023).
Therefore, Gilat Satellite Networks has an ROCE of 9.4%. In absolute terms, that's a low return but it's around the Communications industry average of 7.9%.
Check out our latest analysis for Gilat Satellite Networks
Above you can see how the current ROCE for Gilat Satellite Networks compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Gilat Satellite Networks for free.
What Does the ROCE Trend For Gilat Satellite Networks Tell Us?
Things have been pretty stable at Gilat Satellite Networks, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Gilat Satellite Networks to be a multi-bagger going forward.
The Bottom Line On Gilat Satellite Networks' ROCE
In summary, Gilat Satellite Networks isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 26% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
If you'd like to know about the risks facing Gilat Satellite Networks, we've discovered 1 warning sign that you should be aware of.
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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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.
