Returns At Dubai Electricity and Water Authority (PJSC) (DFM:DEWA) Appear To Be Weighed Down

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Dubai Electricity and Water Authority (PJSC) (DFM:DEWA), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Dubai Electricity and Water Authority (PJSC), this is the formula:

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

0.056 = د.إ8.7b ÷ (د.إ183b - د.إ28b) (Based on the trailing twelve months to September 2023).

So, Dubai Electricity and Water Authority (PJSC) has an ROCE of 5.6%. On its own, that's a low figure but it's around the 5.0% average generated by the Integrated Utilities industry.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

In terms of Dubai Electricity and Water Authority (PJSC)'s historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 5.6% and the business has deployed 25% more capital into its operations. 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.

In Conclusion...

In conclusion, Dubai Electricity and Water Authority (PJSC) has been investing more capital into the business, but returns on that capital haven't increased. Although the market must be expecting these trends to improve because the stock has gained 15% over the last year. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing Dubai Electricity and Water Authority (PJSC) we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.