Stock Analysis

Returns On Capital At Abu Dhabi National Energy Company PJSC (ADX:TAQA) Have Stalled

ADX:TAQA
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Abu Dhabi National Energy Company PJSC (ADX:TAQA) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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 Abu Dhabi National Energy Company PJSC, this is the formula:

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

0.043 = د.إ6.7b ÷ (د.إ184b - د.إ27b) (Based on the trailing twelve months to June 2021).

So, Abu Dhabi National Energy Company PJSC has an ROCE of 4.3%. Even though it's in line with the industry average of 4.2%, it's still a low return by itself.

See our latest analysis for Abu Dhabi National Energy Company PJSC

roce
ADX:TAQA Return on Capital Employed August 25th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Abu Dhabi National Energy Company PJSC, check out these free graphs here.

What Can We Tell From Abu Dhabi National Energy Company PJSC's ROCE Trend?

The returns on capital haven't changed much for Abu Dhabi National Energy Company PJSC in recent years. The company has employed 83% more capital in the last one year, and the returns on that capital have remained stable at 4.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

Long story short, while Abu Dhabi National Energy Company PJSC has been reinvesting its capital, the returns that it's generating haven't increased. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Abu Dhabi National Energy Company PJSC (of which 1 can't be ignored!) that you should 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.

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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.
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