Stock Analysis

Ooredoo Q.P.S.C's (DSM:ORDS) Returns Have Hit A Wall

DSM:ORDS
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Ooredoo Q.P.S.C (DSM:ORDS) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ooredoo Q.P.S.C:

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

0.071 = ر.ق4.2b ÷ (ر.ق78b - ر.ق19b) (Based on the trailing twelve months to September 2021).

So, Ooredoo Q.P.S.C has an ROCE of 7.1%. Ultimately, that's a low return and it under-performs the Telecom industry average of 10%.

Check out our latest analysis for Ooredoo Q.P.S.C

roce
DSM:ORDS Return on Capital Employed January 4th 2022

In the above chart we have measured Ooredoo Q.P.S.C'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.

What Can We Tell From Ooredoo Q.P.S.C's ROCE Trend?

There hasn't been much to report for Ooredoo Q.P.S.C's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Ooredoo Q.P.S.C to be a multi-bagger going forward. That being the case, it makes sense that Ooredoo Q.P.S.C has been paying out 93% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line On Ooredoo Q.P.S.C's ROCE

In summary, Ooredoo Q.P.S.C isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last five years, the stock has given away 22% 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 continue researching Ooredoo Q.P.S.C, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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Find out whether Ooredoo Q.P.S.C is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.