Al Gassim Investment Holding (TADAWUL:6020) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Al Gassim Investment Holding (TADAWUL:6020) looks quite promising in regards to its trends of return on capital.

What is 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 Al Gassim Investment Holding, this is the formula:

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

0.012 = ر.س4.3m ÷ (ر.س444m - ر.س94m) (Based on the trailing twelve months to December 2020).

Thus, Al Gassim Investment Holding has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Food industry average of 5.3%.

See our latest analysis for Al Gassim Investment Holding

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Al Gassim Investment Holding, check out these free graphs here.

The Trend Of ROCE

Shareholders will be relieved that Al Gassim Investment Holding has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.2%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Al Gassim Investment Holding's ROCE

To sum it up, Al Gassim Investment Holding is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 158% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Al Gassim Investment Holding (1 is a bit concerning) you should be aware of.

While Al Gassim Investment Holding 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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