Qatar Fuel Company Q.P.S.C.(WOQOD) (DSM:QFLS) Could Be Struggling To Allocate Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating Qatar Fuel Company Q.P.S.C.(WOQOD) (DSM:QFLS), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Qatar Fuel Company Q.P.S.C.(WOQOD) is:

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

0.051 = ر.ق439m ÷ (ر.ق11b - ر.ق2.8b) (Based on the trailing twelve months to March 2021).

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 8.0%.

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

What Does the ROCE Trend For Qatar Fuel Company Q.P.S.C.(WOQOD) Tell Us?

When we looked at the ROCE trend at Qatar Fuel Company Q.P.S.C.(WOQOD), we didn't gain much confidence. To be more specific, ROCE has fallen from 10% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From 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. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 67% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

One more thing to note, we've identified 1 warning sign with Qatar Fuel Company Q.P.S.C.(WOQOD) and understanding this should be part of your investment process.

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.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.