We Like These Underlying Return On Capital Trends At Abdullah Al-Othaim Markets (TADAWUL:4001)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Abdullah Al-Othaim Markets (TADAWUL:4001) so let's look a bit deeper.

What is 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. The formula for this calculation on Abdullah Al-Othaim Markets is:

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

0.17 = ر.س519m ÷ (ر.س5.0b - ر.س1.9b) (Based on the trailing twelve months to December 2020).

Therefore, Abdullah Al-Othaim Markets has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Consumer Retailing industry.

See our latest analysis for Abdullah Al-Othaim Markets

Above you can see how the current ROCE for Abdullah Al-Othaim Markets compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Abdullah Al-Othaim Markets.

What Can We Tell From Abdullah Al-Othaim Markets' ROCE Trend?

We like the trends that we're seeing from Abdullah Al-Othaim Markets. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 84%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

In summary, it's great to see that Abdullah Al-Othaim Markets can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Abdullah Al-Othaim Markets does have some risks though, and we've spotted 1 warning sign for Abdullah Al-Othaim Markets that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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