Middle East Healthcare (TADAWUL:4009) Might Have The Makings Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Middle East Healthcare (TADAWUL:4009) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Middle East Healthcare:

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

0.11 = ر.س426m ÷ (ر.س5.2b - ر.س1.3b) (Based on the trailing twelve months to September 2024).

Thus, Middle East Healthcare has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Healthcare industry average it falls behind.

View our latest analysis for Middle East Healthcare

In the above chart we have measured Middle East Healthcare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Middle East Healthcare for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Middle East Healthcare. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 68%. So we're very much inspired by what we're seeing at Middle East Healthcare thanks to its ability to profitably reinvest capital.

What We Can Learn From Middle East Healthcare's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Middle East Healthcare has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Middle East Healthcare, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.