Investors Met With Slowing Returns on Capital At Al Yah Satellite Communication Company PJSC (ADX:YAHSAT)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Al Yah Satellite Communication Company PJSC (ADX:YAHSAT), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Al Yah Satellite Communication Company PJSC is:

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

0.062 = US$107m ÷ (US$2.1b - US$360m) (Based on the trailing twelve months to September 2023).

Therefore, Al Yah Satellite Communication Company PJSC has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 11%.

See our latest analysis for Al Yah Satellite Communication Company PJSC

In the above chart we have measured Al Yah Satellite Communication Company PJSC's 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 report for Al Yah Satellite Communication Company PJSC.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Al Yah Satellite Communication Company PJSC, with its capital employed and returns on that capital staying somewhat the same for the last four years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Al Yah Satellite Communication Company PJSC doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Al Yah Satellite Communication Company PJSC has been paying out 89% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

In Conclusion...

In a nutshell, Al Yah Satellite Communication Company PJSC has been trudging along with the same returns from the same amount of capital over the last four years. Although the market must be expecting these trends to improve because the stock has gained 8.4% over the last year. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, Al Yah Satellite Communication Company PJSC does come with some risks, and we've found 1 warning sign that you should be aware of.

While Al Yah Satellite Communication Company PJSC 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.

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.