Emirates Central Cooling Systems (DFM:EMPOWER) Has Some Way To Go To Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Emirates Central Cooling Systems' (DFM:EMPOWER) trend of ROCE, we liked what we saw.

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

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 Emirates Central Cooling Systems:

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

0.13 = د.إ1.1b ÷ (د.إ11b - د.إ2.5b) (Based on the trailing twelve months to September 2024).

Thus, Emirates Central Cooling Systems has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Water Utilities industry average of 7.4% it's much better.

Check out our latest analysis for Emirates Central Cooling Systems

In the above chart we have measured Emirates Central Cooling Systems' 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 analyst report for Emirates Central Cooling Systems .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 49% more capital in the last four years, and the returns on that capital have remained stable at 13%. 13% is a pretty standard return, and it provides some comfort knowing that Emirates Central Cooling Systems has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

The main thing to remember is that Emirates Central Cooling Systems has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 2.4% over the last year, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

If you'd like to know about the risks facing Emirates Central Cooling Systems, we've discovered 2 warning signs that you should be aware of.

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.