Slowing Rates Of Return At Hail Cement (TADAWUL:3001) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. In light of that, when we looked at Hail Cement (TADAWUL:3001) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Hail Cement, this is the formula:

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

0.11 = ر.س126m ÷ (ر.س1.3b - ر.س63m) (Based on the trailing twelve months to December 2020).

Thus, Hail Cement has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 8.7% it's much better.

View our latest analysis for Hail Cement

In the above chart we have measured Hail Cement's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hail Cement.

So How Is Hail Cement's ROCE Trending?

There hasn't been much to report for Hail Cement's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Hail Cement to be a multi-bagger going forward. That being the case, it makes sense that Hail Cement has been paying out 110% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line

In summary, Hail Cement isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 62% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 1 warning sign with Hail Cement and understanding it should be part of your investment process.

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. 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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