Abdulmohsen Al-Hokair Group for Tourism and Development (TADAWUL:1820) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Abdulmohsen Al-Hokair Group for Tourism and Development's (TADAWUL:1820) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Abdulmohsen Al-Hokair Group for Tourism and Development, this is the formula:

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

0.0086 = ر.س13m ÷ (ر.س2.0b - ر.س583m) (Based on the trailing twelve months to September 2023).

So, Abdulmohsen Al-Hokair Group for Tourism and Development has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 11%.

See our latest analysis for Abdulmohsen Al-Hokair Group for Tourism and Development

Above you can see how the current ROCE for Abdulmohsen Al-Hokair Group for Tourism and Development compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Abdulmohsen Al-Hokair Group for Tourism and Development here for free.

What Does the ROCE Trend For Abdulmohsen Al-Hokair Group for Tourism and Development Tell Us?

Abdulmohsen Al-Hokair Group for Tourism and Development has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.9%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Key Takeaway

To bring it all together, Abdulmohsen Al-Hokair Group for Tourism and Development has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 44% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Abdulmohsen Al-Hokair Group for Tourism and Development you'll probably want to know about.

While Abdulmohsen Al-Hokair Group for Tourism and Development isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.