Returns On Capital Signal Tricky Times Ahead For Mohammed Hasan AlNaqool Sons (TADAWUL:9514)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Mohammed Hasan AlNaqool Sons (TADAWUL:9514), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mohammed Hasan AlNaqool Sons is:

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

0.031 = ر.س2.3m ÷ (ر.س104m - ر.س30m) (Based on the trailing twelve months to December 2023).

Therefore, Mohammed Hasan AlNaqool Sons has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 4.9%.

View our latest analysis for Mohammed Hasan AlNaqool Sons

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Mohammed Hasan AlNaqool Sons' past further, check out this free graph covering Mohammed Hasan AlNaqool Sons' past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Mohammed Hasan AlNaqool Sons, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.1% from 10% five years ago. However it looks like Mohammed Hasan AlNaqool Sons might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Mohammed Hasan AlNaqool Sons' ROCE

To conclude, we've found that Mohammed Hasan AlNaqool Sons is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 79% over the last three years, it appears investors are expecting the worst. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know more about Mohammed Hasan AlNaqool Sons, we've spotted 3 warning signs, and 2 of them don't sit too well with us.

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.