Qatar Gas Transport Company Limited (Nakilat) (QPSC) (DSM:QGTS) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after investigating Qatar Gas Transport Company Limited (Nakilat) (QPSC) (DSM:QGTS), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Qatar Gas Transport Company Limited (Nakilat) (QPSC), this is the formula:

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

0.065 = ر.ق1.7b ÷ (ر.ق32b - ر.ق4.7b) (Based on the trailing twelve months to June 2023).

Therefore, Qatar Gas Transport Company Limited (Nakilat) (QPSC) has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 12%.

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?

Things have been pretty stable at Qatar Gas Transport Company Limited (Nakilat) (QPSC), with its capital employed and returns on that capital staying somewhat the same for the last 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. So unless we see a substantial change at Qatar Gas Transport Company Limited (Nakilat) (QPSC) in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Qatar Gas Transport Company Limited (Nakilat) (QPSC) is paying out 57% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Bottom Line On Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s ROCE

In summary, Qatar Gas Transport Company Limited (Nakilat) (QPSC) isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Yet to long term shareholders the stock has gifted them an incredible 165% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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.

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.