Abdullah Al-Othaim Markets (TADAWUL:4001) Could Be Struggling To Allocate Capital

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating Abdullah Al-Othaim Markets (TADAWUL:4001), we don't think it's current trends fit the mold of a multi-bagger.

Our free stock report includes 2 warning signs investors should be aware of before investing in Abdullah Al-Othaim Markets. Read for free now.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Abdullah Al-Othaim Markets:

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

0.11 = ر.س433m ÷ (ر.س7.0b - ر.س3.0b) (Based on the trailing twelve months to December 2024).

Therefore, Abdullah Al-Othaim Markets has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View our latest analysis for Abdullah Al-Othaim Markets

In the above chart we have measured Abdullah Al-Othaim Markets' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Abdullah Al-Othaim Markets .

So How Is Abdullah Al-Othaim Markets' ROCE Trending?

When we looked at the ROCE trend at Abdullah Al-Othaim Markets, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 11% from 14% five years ago. However it looks like Abdullah Al-Othaim Markets might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Abdullah Al-Othaim Markets' current liabilities are still rather high at 42% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To conclude, we've found that Abdullah Al-Othaim Markets is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 21% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we found 2 warning signs for Abdullah Al-Othaim Markets (1 is potentially serious) you should be aware of.

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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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.