Will National Shipping Company of Saudi Arabia (TADAWUL:4030) Multiply In Value Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think National Shipping Company of Saudi Arabia (TADAWUL:4030) 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 Shipping Company of Saudi Arabia, this is the formula:

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

0.11 = ر.س2.1b ÷ (ر.س21b - ر.س2.4b) (Based on the trailing twelve months to September 2020).

So, National Shipping Company of Saudi Arabia has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 7.8% it's much better.

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'd like to look at how National Shipping Company of Saudi Arabia has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Over the past five years, National Shipping Company of Saudi Arabia's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. 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.

In Conclusion...

In a nutshell, National Shipping Company of Saudi Arabia has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 27% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for National Shipping Company of Saudi Arabia (of which 1 can't be ignored!) that you should 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. 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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