Slowing Rates Of Return At Al Hammadi Company For Development and Investment (TADAWUL:4007) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 briefly looking over the numbers, we don't think Al Hammadi Company For Development and Investment (TADAWUL:4007) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Hammadi Company For Development and Investment:

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

0.085 = ر.س179m ÷ (ر.س2.4b - ر.س326m) (Based on the trailing twelve months to December 2020).

Thus, Al Hammadi Company For Development and Investment has an ROCE of 8.5%. On its own, that's a low figure but it's around the 7.9% average generated by the Healthcare industry.

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

In the above chart we have measured Al Hammadi Company For Development and Investment's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can 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 8.5% and the business has deployed 24% 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.

In Conclusion...

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. And in the last five years, the stock has given away 25% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

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.

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