Return Trends At Dubai Electricity and Water Authority (PJSC) (DFM:DEWA) Aren't Appealing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Having said that, from a first glance at Dubai Electricity and Water Authority (PJSC) (DFM:DEWA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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.إ8.5b ÷ (د.إ186b - د.إ33b) (Based on the trailing twelve months to September 2024).

So, Dubai Electricity and Water Authority (PJSC) has an ROCE of 5.5%. Even though it's in line with the industry average of 5.8%, it's still a low return by itself.

View 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) .

The Trend Of ROCE

Things have been pretty stable at Dubai Electricity and Water Authority (PJSC), with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Dubai Electricity and Water Authority (PJSC) in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that Dubai Electricity and Water Authority (PJSC) has been paying out a large portion (81%) of earnings in the form of dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

What We Can Learn From Dubai Electricity and Water Authority (PJSC)'s ROCE

In a nutshell, Dubai Electricity and Water Authority (PJSC) has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 18% over the last year, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

While Dubai Electricity and Water Authority (PJSC) doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for DEWA on our platform.

While Dubai Electricity and Water Authority (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.

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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.