Investors Met With Slowing Returns on Capital At ADNOC Gas (ADX:ADNOCGAS)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while ADNOC Gas (ADX:ADNOCGAS) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for ADNOC Gas, this is the formula:

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

0.23 = US$6.5b ÷ (US$30b - US$2.5b) (Based on the trailing twelve months to June 2025).

Thus, ADNOC Gas has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 8.6%.

Check out our latest analysis for ADNOC Gas

In the above chart we have measured ADNOC Gas' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ADNOC Gas .

So How Is ADNOC Gas' ROCE Trending?

Things have been pretty stable at ADNOC Gas, with its capital employed and returns on that capital staying somewhat the same for the last one year. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So while the current operations are delivering respectable returns, unless capital employed increases we'd be hard-pressed to believe it's a multi-bagger going forward. That probably explains why ADNOC Gas has been paying out 82% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Key Takeaway

In summary, ADNOC Gas isn't compounding its earnings but is generating decent returns on the same amount of capital employed. Since the stock has gained an impressive 21% over the last year, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 1 warning sign facing ADNOC Gas that you might find interesting.

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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.