Stock Analysis

Returns At Dubai Investments PJSC (DFM:DIC) Are On The Way Up

DFM:DIC
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Dubai Investments PJSC (DFM:DIC) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Dubai Investments PJSC is:

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

0.039 = د.إ666m ÷ (د.إ22b - د.إ4.8b) (Based on the trailing twelve months to March 2021).

Thus, Dubai Investments PJSC has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 5.8%.

View our latest analysis for Dubai Investments PJSC

roce
DFM:DIC Return on Capital Employed August 2nd 2021

In the above chart we have measured Dubai Investments PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Dubai Investments PJSC's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 3.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 32% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Dubai Investments PJSC's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Dubai Investments PJSC has. Since the stock has only returned 18% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we found 2 warning signs for Dubai Investments PJSC (1 is a bit unpleasant) you should be aware of.

While Dubai Investments 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. 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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