Slowing Rates Of Return At Gulf Warehousing Company Q.P.S.C (DSM:GWCS) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Gulf Warehousing Company Q.P.S.C (DSM:GWCS), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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 Gulf Warehousing Company Q.P.S.C, this is the formula:

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

0.083 = ر.ق292m ÷ (ر.ق4.3b - ر.ق780m) (Based on the trailing twelve months to March 2022).

Thus, Gulf Warehousing Company Q.P.S.C has an ROCE of 8.3%. Ultimately, that's a low return and it under-performs the Logistics industry average of 12%.

See our latest analysis for Gulf Warehousing Company Q.P.S.C

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Gulf Warehousing Company Q.P.S.C's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at Gulf Warehousing Company Q.P.S.C, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Gulf Warehousing Company Q.P.S.C to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Gulf Warehousing Company Q.P.S.C has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 7.3% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Gulf Warehousing Company Q.P.S.C that you might find interesting.

While Gulf Warehousing 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. 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.