Returns On Capital At Al Hammadi Company For Development and Investment (TADAWUL:4007) Have Stalled

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Al Hammadi Company For Development and Investment (TADAWUL:4007) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Al Hammadi Company For Development and Investment:

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

0.084 = ر.س177m ÷ (ر.س2.5b - ر.س370m) (Based on the trailing twelve months to June 2021).

Thus, Al Hammadi Company For Development and Investment has an ROCE of 8.4%. Even though it's in line with the industry average of 8.4%, it's still a low return by itself.

See our latest analysis for Al Hammadi Company For Development and Investment

Above you can see how the current ROCE for Al Hammadi Company For Development and Investment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Al Hammadi Company For Development and Investment Tell Us?

The returns on capital haven't changed much for Al Hammadi Company For Development and Investment in recent years. Over the past five years, ROCE has remained relatively flat at around 8.4% and the business has deployed 21% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Al Hammadi Company For Development and Investment's ROCE

In conclusion, Al Hammadi Company For Development and Investment has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 16% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

While Al Hammadi Company For Development and Investment doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

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.

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.

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