Al-Jouf Agricultural Development (TADAWUL:6070) Hasn't Managed To Accelerate Its Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Al-Jouf Agricultural Development (TADAWUL:6070), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Al-Jouf Agricultural Development:

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

0.058 = ر.س56m ÷ (ر.س1.1b - ر.س150m) (Based on the trailing twelve months to December 2023).

Thus, Al-Jouf Agricultural Development has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

Check out our latest analysis for Al-Jouf Agricultural Development

Historical performance is a great place to start when researching a stock so above you can see the gauge for Al-Jouf Agricultural Development's ROCE against it's prior returns. If you're interested in investigating Al-Jouf Agricultural Development's past further, check out this free graph covering Al-Jouf Agricultural Development's past earnings, revenue and cash flow.

What Can We Tell From Al-Jouf Agricultural Development's ROCE Trend?

The returns on capital haven't changed much for Al-Jouf Agricultural Development in recent years. The company has consistently earned 5.8% for the last five years, and the capital employed within the business has risen 23% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Al-Jouf Agricultural Development's ROCE

In summary, Al-Jouf Agricultural Development has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 200% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, Al-Jouf Agricultural Development does come with some risks, and we've found 1 warning sign that you should be aware of.

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.