Alpha Dhabi Holding PJSC (ADX:ALPHADHABI) Is Reinvesting At Lower Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Alpha Dhabi Holding PJSC (ADX:ALPHADHABI), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Alpha Dhabi Holding PJSC is:

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

0.084 = د.إ12b ÷ (د.إ206b - د.إ62b) (Based on the trailing twelve months to September 2025).

Therefore, Alpha Dhabi Holding PJSC has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 5.0% generated by the Industrials industry, it's much better.

See our latest analysis for Alpha Dhabi Holding PJSC

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alpha Dhabi Holding PJSC's ROCE against it's prior returns. If you'd like to look at how Alpha Dhabi Holding PJSC has performed in the past in other metrics, you can view this free graph of Alpha Dhabi Holding PJSC's past earnings, revenue and cash flow.

What Does the ROCE Trend For Alpha Dhabi Holding PJSC Tell Us?

We weren't thrilled with the trend because Alpha Dhabi Holding PJSC's ROCE has reduced by 37% over the last five years, while the business employed 9,487% more capital. That being said, Alpha Dhabi Holding PJSC raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. Alpha Dhabi Holding PJSC probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a side note, Alpha Dhabi Holding PJSC has done well to pay down its current liabilities to 30% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Alpha Dhabi Holding PJSC is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 66% over the last three years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, Alpha Dhabi Holding PJSC does come with some risks, and we've found 1 warning sign that you should be aware of.

While Alpha Dhabi Holding PJSC 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.

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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.