Dubai Electricity and Water Authority (PJSC) (DFM:DEWA) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Dubai Electricity and Water Authority (PJSC) (DFM:DEWA), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Dubai Electricity and Water Authority (PJSC):

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

0.055 = د.إ8.4b ÷ (د.إ181b - د.إ26b) (Based on the trailing twelve months to December 2023).

So, Dubai Electricity and Water Authority (PJSC) has an ROCE of 5.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.0%.

Check out our latest analysis for Dubai Electricity and Water Authority (PJSC)

In the above chart we have measured Dubai Electricity and Water Authority (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 analyst report for Dubai Electricity and Water Authority (PJSC) .

So How Is Dubai Electricity and Water Authority (PJSC)'s ROCE Trending?

In terms of Dubai Electricity and Water Authority (PJSC)'s historical ROCE trend, it doesn't exactly demand attention. The company has employed 22% more capital in the last five years, and the returns on that capital have remained stable at 5.5%. 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

In conclusion, Dubai Electricity and Water Authority (PJSC) has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 1.4% to shareholders over the last year. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Dubai Electricity and Water Authority (PJSC) does have some risks though, and we've spotted 1 warning sign for Dubai Electricity and Water Authority (PJSC) that you might be interested in.

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.