Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) so let's look a bit deeper.

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. The formula for this calculation on Saudi Arabian Mining Company (Ma'aden) is:

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

0.063 = ر.س5.6b ÷ (ر.س100b - ر.س11b) (Based on the trailing twelve months to September 2021).

Thus, Saudi Arabian Mining Company (Ma'aden) has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 11%.

See our latest analysis for Saudi Arabian Mining Company (Ma'aden)

In the above chart we have measured Saudi Arabian Mining Company (Ma'aden)'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 Saudi Arabian Mining Company (Ma'aden) here for free.

What The Trend Of ROCE Can Tell Us

Saudi Arabian Mining Company (Ma'aden)'s ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 374% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Saudi Arabian Mining Company (Ma'aden)'s ROCE

As discussed above, Saudi Arabian Mining Company (Ma'aden) appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Saudi Arabian Mining Company (Ma'aden) does come with some risks, and we've found 2 warning signs that 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.

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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