Slowing Rates Of Return At Qatar Gas Transport Company Limited (Nakilat) (QPSC) (DSM:QGTS) Leave Little Room For Excitement

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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?

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. 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.ق1.7b ÷ (ر.ق32b - ر.ق4.8b) (Based on the trailing twelve months to September 2023).

Therefore, Qatar Gas Transport Company Limited (Nakilat) (QPSC) has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 11%.

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

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

Over the past five years, Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. 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. With fewer investment opportunities, it makes sense that Qatar Gas Transport Company Limited (Nakilat) (QPSC) has been paying out a decent 50% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Key Takeaway

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 122% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing to note, we've identified 1 warning sign with Qatar Gas Transport Company Limited (Nakilat) (QPSC) and understanding it should be part of your investment process.

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.