Alujain (TADAWUL:2170) Might Have The Makings Of A Multi-Bagger

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Alujain (TADAWUL:2170) looks quite promising in regards to its trends of return on capital.

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

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. The formula for this calculation on Alujain is:

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

0.056 = ر.س252m ÷ (ر.س5.2b - ر.س690m) (Based on the trailing twelve months to June 2022).

So, Alujain has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 11%.

Our analysis indicates that 2170 is potentially undervalued!

Historical performance is a great place to start when researching a stock so above you can see the gauge for Alujain's ROCE against it's prior returns. If you'd like to look at how Alujain has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Alujain has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Alujain is utilizing 80% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Alujain's ROCE

Long story short, we're delighted to see that Alujain's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last three 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.

If you'd like to know more about Alujain, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

While Alujain may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.