Should We Be Excited About The Trends Of Returns At Jazan Energy and Development (TADAWUL:6090)?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Having said that, from a first glance at Jazan Energy and Development (TADAWUL:6090) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Jazan Energy and Development is:

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

0.021 = ر.س11m ÷ (ر.س604m - ر.س57m) (Based on the trailing twelve months to September 2020).

So, Jazan Energy and Development has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Food industry average of 5.3%.

Check out our latest analysis for Jazan Energy and Development

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

So How Is Jazan Energy and Development's ROCE Trending?

There hasn't been much to report for Jazan Energy and Development's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Jazan Energy and Development doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In summary, Jazan Energy and Development isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 89% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

On a final note, we found 2 warning signs for Jazan Energy and Development (1 doesn't sit too well with us) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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