Does Widam Food Company Q.P.S.C (DSM:WDAM) Have The Makings Of A Multi-Bagger?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Widam Food Company Q.P.S.C (DSM:WDAM) so let's look a bit deeper.

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 Widam Food Company Q.P.S.C, this is the formula:

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

0.20 = ر.ق82m ÷ (ر.ق559m - ر.ق137m) (Based on the trailing twelve months to September 2020).

Therefore, Widam Food Company Q.P.S.C has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Food industry.

Check out our latest analysis for Widam Food Company Q.P.S.C

Above you can see how the current ROCE for Widam Food Company Q.P.S.C compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Widam Food Company Q.P.S.C here for free.

What Can We Tell From Widam Food Company Q.P.S.C's ROCE Trend?

We're delighted to see that Widam Food Company Q.P.S.C is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 20% on its capital. And unsurprisingly, like most companies trying to break into the black, Widam Food Company Q.P.S.C is utilizing 59% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 25%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Widam Food Company Q.P.S.C's ROCE

To the delight of most shareholders, Widam Food Company Q.P.S.C has now broken into profitability. And with a respectable 77% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Widam Food Company Q.P.S.C does have some risks though, and we've spotted 1 warning sign for Widam Food Company Q.P.S.C that you might be interested in.

While Widam Food Company Q.P.S.C 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. 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.
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