Al Yah Satellite Communication Company PJSC (ADX:YAHSAT) Has Some Way To Go To Become A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Al Yah Satellite Communication Company PJSC (ADX:YAHSAT) 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. To calculate this metric for Al Yah Satellite Communication Company PJSC, this is the formula:

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

0.065 = US$114m ÷ (US$2.1b - US$381m) (Based on the trailing twelve months to September 2022).

Therefore, Al Yah Satellite Communication Company PJSC has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 11%.

Check out our latest analysis for Al Yah Satellite Communication Company PJSC

Above you can see how the current ROCE for Al Yah Satellite Communication Company PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Al Yah Satellite Communication Company PJSC here for free.

What Does the ROCE Trend For Al Yah Satellite Communication Company PJSC Tell Us?

Over the past three years, Al Yah Satellite Communication Company 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 Al Yah Satellite Communication Company PJSC to be a multi-bagger going forward. That being the case, it makes sense that Al Yah Satellite Communication Company PJSC has been paying out 84% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

What We Can Learn From Al Yah Satellite Communication Company PJSC's ROCE

In summary, Al Yah Satellite Communication Company PJSC isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 3.7% in the last year to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing to note, we've identified 1 warning sign with Al Yah Satellite Communication Company PJSC and understanding it should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.