Investors Will Want ADNOC Logistics & Services' (ADX:ADNOCLS) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in ADNOC Logistics & Services' (ADX:ADNOCLS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on ADNOC Logistics & Services is:

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

0.14 = US$678m ÷ (US$6.1b - US$1.1b) (Based on the trailing twelve months to March 2024).

Thus, ADNOC Logistics & Services has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 11% it's much better.

Check out our latest analysis for ADNOC Logistics & Services

In the above chart we have measured ADNOC Logistics & Services' 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 Logistics & Services .

What Does the ROCE Trend For ADNOC Logistics & Services Tell Us?

Investors would be pleased with what's happening at ADNOC Logistics & Services. The data shows that returns on capital have increased substantially over the last three years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 185% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From ADNOC Logistics & Services' ROCE

In summary, it's great to see that ADNOC Logistics & Services can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 45% return over the last year. In light of that, we think it's worth looking further into this stock because if ADNOC Logistics & Services can keep these trends up, it could have a bright future ahead.

While ADNOC Logistics & Services looks impressive, no company is worth an infinite price. The intrinsic value infographic for ADNOCLS helps visualize whether it is currently trading for a fair price.

While ADNOC Logistics & Services 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.