Is Al Moammar Information Systems (TADAWUL:7200) Going To Multiply In Value?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Al Moammar Information Systems' (TADAWUL:7200) ROCE trend, we were very happy with what we saw.

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. To calculate this metric for Al Moammar Information Systems, this is the formula:

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

0.36 = ر.س117m ÷ (ر.س1.2b - ر.س901m) (Based on the trailing twelve months to September 2020).

Thus, Al Moammar Information Systems has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Al Moammar Information Systems

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 want to delve into the historical earnings, revenue and cash flow of Al Moammar Information Systems, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Al Moammar Information Systems' returns on capital. The company has employed 98% more capital in the last five years, and the returns on that capital have remained stable at 36%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Al Moammar Information Systems can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that Al Moammar Information Systems has a current liabilities to total assets ratio of 73%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Al Moammar Information Systems' ROCE

Al Moammar Information Systems has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 176% return to those who've held over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know more about Al Moammar Information Systems, we've spotted 4 warning signs, and 2 of them don't sit too well with us.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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