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- SASE:4004
Dallah Healthcare (TADAWUL:4004) Is Reinvesting At Lower Rates Of Return
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. 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 Dallah Healthcare (TADAWUL:4004), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Dallah Healthcare is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.086 = ر.س441m ÷ (ر.س6.1b - ر.س922m) (Based on the trailing twelve months to March 2023).
So, Dallah Healthcare has an ROCE of 8.6%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 14%.
View our latest analysis for Dallah Healthcare
In the above chart we have measured Dallah Healthcare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Dallah Healthcare.
So How Is Dallah Healthcare's ROCE Trending?
When we looked at the ROCE trend at Dallah Healthcare, we didn't gain much confidence. Around five years ago the returns on capital were 12%, but since then they've fallen to 8.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line On Dallah Healthcare's ROCE
While returns have fallen for Dallah Healthcare in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 310% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
Like most companies, Dallah Healthcare does come with some risks, and we've found 2 warning signs that you should be aware of.
While Dallah Healthcare 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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About SASE:4004
Dallah Healthcare
Operates as a health care company in the Kingdom of Saudi Arabia.
Solid track record and good value.
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