Here's What To Make Of Sahara International Petrochemical's (TADAWUL:2310) Decelerating Rates Of Return

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Sahara International Petrochemical (TADAWUL:2310), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Sahara International Petrochemical, this is the formula:

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

0.043 = ر.س817m ÷ (ر.س22b - ر.س2.7b) (Based on the trailing twelve months to September 2024).

Thus, Sahara International Petrochemical has an ROCE of 4.3%. Even though it's in line with the industry average of 4.3%, it's still a low return by itself.

See our latest analysis for Sahara International Petrochemical

In the above chart we have measured Sahara International Petrochemical'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 Sahara International Petrochemical for free.

What The Trend Of ROCE Can Tell Us

Over the past five years, Sahara International Petrochemical's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Sahara International Petrochemical to be a multi-bagger going forward. That being the case, it makes sense that Sahara International Petrochemical has been paying out 100% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

In Conclusion...

We can conclude that in regards to Sahara International Petrochemical's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 93% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Sahara International Petrochemical, we've discovered 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.

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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.