Leejam Sports (TADAWUL:1830) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So, when we ran our eye over Leejam Sports' (TADAWUL:1830) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Leejam Sports is:

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

0.19 = ر.س430m ÷ (ر.س3.1b - ر.س821m) (Based on the trailing twelve months to September 2023).

So, Leejam Sports has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.

View our latest analysis for Leejam Sports

Above you can see how the current ROCE for Leejam Sports 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 Leejam Sports here for free.

What Does the ROCE Trend For Leejam Sports Tell Us?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 91% more capital into its operations. 19% is a pretty standard return, and it provides some comfort knowing that Leejam Sports has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

In the end, Leejam Sports has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 248% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for Leejam Sports you'll probably want to know about.

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.