Qatar Gas Transport Company Limited (Nakilat) (QPSC) (DSM:QGTS) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s (DSM:QGTS) returns on capital, so let's have a look.

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

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. 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.ق1.9b ÷ (ر.ق33b - ر.ق4.0b) (Based on the trailing twelve months to September 2022).

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

Our analysis indicates that QGTS is potentially undervalued!

Above you can see how the current ROCE for Qatar Gas Transport Company Limited (Nakilat) (QPSC) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Qatar Gas Transport Company Limited (Nakilat) (QPSC).

How Are Returns Trending?

Qatar Gas Transport Company Limited (Nakilat) (QPSC) has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 25% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

In summary, we're delighted to see that Qatar Gas Transport Company Limited (Nakilat) (QPSC) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Qatar Gas Transport Company Limited (Nakilat) (QPSC) can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Qatar Gas Transport Company Limited (Nakilat) (QPSC) (including 1 which can't be ignored) .

While Qatar Gas Transport Company Limited (Nakilat) (QPSC) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.