Be Wary Of Emirates Telecommunications Group Company PJSC (ADX:EAND) And Its Returns On Capital

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Emirates Telecommunications Group Company PJSC (ADX:EAND) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Emirates Telecommunications Group Company PJSC is:

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

0.14 = د.إ14b ÷ (د.إ146b - د.إ45b) (Based on the trailing twelve months to September 2024).

Therefore, Emirates Telecommunications Group Company PJSC has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 11% it's much better.

Check out our latest analysis for Emirates Telecommunications Group Company PJSC

Above you can see how the current ROCE for Emirates Telecommunications Group Company 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 analyst report for Emirates Telecommunications Group Company PJSC .

How Are Returns Trending?

On the surface, the trend of ROCE at Emirates Telecommunications Group Company PJSC doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 14%. However it looks like Emirates Telecommunications Group Company PJSC might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

In summary, Emirates Telecommunications Group Company PJSC is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 30% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a separate note, we've found 2 warning signs for Emirates Telecommunications Group Company PJSC you'll probably want to know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.