Stock Analysis

The Returns At Dubai Investments PJSC (DFM:DIC) Aren't Growing

DFM:DIC
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What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Dubai Investments PJSC (DFM:DIC), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Dubai Investments PJSC:

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

0.037 = د.إ606m ÷ (د.إ22b - د.إ5.5b) (Based on the trailing twelve months to June 2022).

Thus, Dubai Investments PJSC has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Industrials industry average of 5.1%.

Check out the opportunities and risks within the AE Industrials industry.

roce
DFM:DIC Return on Capital Employed October 12th 2022

Above you can see how the current ROCE for Dubai Investments PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Dubai Investments PJSC's ROCE Trending?

Over the past five years, Dubai Investments PJSC's ROCE and capital employed have both remained mostly flat. 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 Dubai Investments PJSC to be a multi-bagger going forward. That probably explains why Dubai Investments PJSC has been paying out 69% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line On Dubai Investments PJSC's ROCE

In a nutshell, Dubai Investments PJSC has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 28% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Dubai Investments PJSC could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Dubai Investments PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.