Return Trends At Al Yah Satellite Communication Company PJSC (ADX:YAHSAT) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.055 = US$101m ÷ (US$2.1b - US$267m) (Based on the trailing twelve months to June 2022).

So, Al Yah Satellite Communication Company PJSC has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 11%.

View 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, you can check out the forecasts from the analysts covering Al Yah Satellite Communication Company PJSC here for free.

How Are Returns Trending?

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 three years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Al Yah Satellite Communication Company PJSC in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That probably explains why Al Yah Satellite Communication Company PJSC has been paying out 104% of its earnings as dividends to 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. Since the stock has gained an impressive 12% 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.

On a final note, we've found 1 warning sign for Al Yah Satellite Communication Company PJSC that we think you should be aware of.

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.