Here's What To Make Of Qatari Investors Group Q.S.C's (DSM:QIGD) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Qatari Investors Group Q.S.C (DSM:QIGD) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Qatari Investors Group Q.S.C:

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

0.06 = ر.ق250m ÷ (ر.ق4.7b - ر.ق572m) (Based on the trailing twelve months to September 2022).

Therefore, Qatari Investors Group Q.S.C has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 8.2%.

See our latest analysis for Qatari Investors Group Q.S.C

Historical performance is a great place to start when researching a stock so above you can see the gauge for Qatari Investors Group Q.S.C's ROCE against it's prior returns. If you'd like to look at how Qatari Investors Group Q.S.C has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Things have been pretty stable at Qatari Investors Group Q.S.C, 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 Qatari Investors Group Q.S.C in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

In Conclusion...

In a nutshell, Qatari Investors Group Q.S.C has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 31% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Qatari Investors Group Q.S.C we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.