Investors Met With Slowing Returns on Capital At Dubai Electricity and Water Authority (PJSC) (DFM:DEWA)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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.

What Is 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)

0.056 = د.إ8.6b ÷ (د.إ183b - د.إ29b) (Based on the trailing twelve months to June 2024).

So, Dubai Electricity and Water Authority (PJSC) has an ROCE of 5.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.8%.

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

Above you can see how the current ROCE for Dubai Electricity and Water Authority (PJSC) compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Dubai Electricity and Water Authority (PJSC) .

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Dubai Electricity and Water Authority (PJSC)'s returns and its level of capital employed because both metrics have been steady for the past five years. 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 Dubai Electricity and Water Authority (PJSC) to be a multi-bagger going forward. On top of that you'll notice that Dubai Electricity and Water Authority (PJSC) has been paying out a large portion (87%) of earnings in the form of dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

In Conclusion...

In summary, Dubai Electricity and Water Authority (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 3.2% in the last year to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck 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.

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.