Qatar Gas Transport Company Limited (Nakilat) (QPSC) (DSM:QGTS) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at Qatar Gas Transport Company Limited (Nakilat) (QPSC) (DSM:QGTS) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Qatar Gas Transport Company Limited (Nakilat) (QPSC) is:

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

0.063 = ر.ق1.9b ÷ (ر.ق33b - ر.ق2.8b) (Based on the trailing twelve months to September 2021).

Thus, Qatar Gas Transport Company Limited (Nakilat) (QPSC) has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.3%.

See our latest analysis for Qatar Gas Transport Company Limited (Nakilat) (QPSC)

In the above chart we have measured Qatar Gas Transport Company Limited (Nakilat) (QPSC)'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 Gas Transport Company Limited (Nakilat) (QPSC) here for free.

So How Is Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s ROCE Trending?

There hasn't been much to report for Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s returns and its level of capital employed because both metrics have been steady for the past 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Qatar Gas Transport Company Limited (Nakilat) (QPSC) to be a multi-bagger going forward. This probably explains why Qatar Gas Transport Company Limited (Nakilat) (QPSC) is paying out 50% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s ROCE

We can conclude that in regards to Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 81% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Qatar Gas Transport Company Limited (Nakilat) (QPSC) does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.