We're Watching These Trends At National Company for Learning and Education (TADAWUL:4291)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after briefly looking over the numbers, we don't think National Company for Learning and Education (TADAWUL:4291) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for National Company for Learning and Education, this is the formula:

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

0.078 = ر.س59m ÷ (ر.س847m - ر.س87m) (Based on the trailing twelve months to November 2020).

Thus, National Company for Learning and Education has an ROCE of 7.8%. Even though it's in line with the industry average of 8.3%, it's still a low return by itself.

View our latest analysis for National Company for Learning and Education

In the above chart we have measured National Company for Learning and Education's 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 report for National Company for Learning and Education.

What Can We Tell From National Company for Learning and Education's ROCE Trend?

In terms of National Company for Learning and Education's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 18% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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.

The Key Takeaway

To conclude, we've found that National Company for Learning and Education is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 50% over the last year. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 1 warning sign facing National Company for Learning and Education that you might find interesting.

While National Company for Learning and Education 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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