Has Qatar Fuel Company Q.P.S.C.(WOQOD) (DSM:QFLS) Got What It Takes To Become A Multi-Bagger?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Although, when we looked at Qatar Fuel Company Q.P.S.C.(WOQOD) (DSM:QFLS), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Qatar Fuel Company Q.P.S.C.(WOQOD):

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

0.051 = ر.ق434m ÷ (ر.ق12b - ر.ق3.8b) (Based on the trailing twelve months to September 2020).

Thus, Qatar Fuel Company Q.P.S.C.(WOQOD) has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 7.7%.

View our latest analysis for Qatar Fuel Company Q.P.S.C.(WOQOD)

In the above chart we have measured Qatar Fuel Company Q.P.S.C.(WOQOD)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Qatar Fuel Company Q.P.S.C.(WOQOD) here for free.

How Are Returns Trending?

On the surface, the trend of ROCE at Qatar Fuel Company Q.P.S.C.(WOQOD) doesn't inspire confidence. To be more specific, ROCE has fallen from 7.8% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Qatar Fuel Company Q.P.S.C.(WOQOD)'s ROCE

We're a bit apprehensive about Qatar Fuel Company Q.P.S.C.(WOQOD) because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Yet despite these poor fundamentals, the stock has gained a huge 128% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Qatar Fuel Company Q.P.S.C.(WOQOD) does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

While Qatar Fuel Company Q.P.S.C.(WOQOD) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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