Is National Gas & Industerialization (TADAWUL:2080) Likely To Turn Things Around?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after investigating National Gas & Industerialization (TADAWUL:2080), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on National Gas & Industerialization is:

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

0.012 = ر.س21m ÷ (ر.س2.3b - ر.س487m) (Based on the trailing twelve months to September 2020).

Therefore, National Gas & Industerialization has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Gas Utilities industry average of 7.0%.

View our latest analysis for National Gas & Industerialization

Historical performance is a great place to start when researching a stock so above you can see the gauge for National Gas & Industerialization's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of National Gas & Industerialization, check out these free graphs here.

So How Is National Gas & Industerialization's ROCE Trending?

In terms of National Gas & Industerialization's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 11% over the last five years. However it looks like National Gas & Industerialization 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From National Gas & Industerialization's ROCE

In summary, National Gas & Industerialization is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 102% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing National Gas & Industerialization we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

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. 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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