Slowing Rates Of Return At National Shipping Company of Saudi Arabia (TADAWUL:4030) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. In light of that, when we looked at National Shipping Company of Saudi Arabia (TADAWUL:4030) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for National Shipping Company of Saudi Arabia, this is the formula:

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

0.10 = ر.س1.9b ÷ (ر.س21b - ر.س2.4b) (Based on the trailing twelve months to December 2020).

Therefore, National Shipping Company of Saudi Arabia has an ROCE of 10.0%. In absolute terms, that's a low return, but it's much better than the Oil and Gas industry average of 7.2%.

View our latest analysis for National Shipping Company of Saudi Arabia

Historical performance is a great place to start when researching a stock so above you can see the gauge for National Shipping Company of Saudi Arabia's ROCE against it's prior returns. If you're interested in investigating National Shipping Company of Saudi Arabia's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at National Shipping Company of Saudi Arabia, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect National Shipping Company of Saudi Arabia to be a multi-bagger going forward.

The Bottom Line

In summary, National Shipping Company of Saudi Arabia isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to know some of the risks facing National Shipping Company of Saudi Arabia we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While National Shipping Company of Saudi Arabia 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. 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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