Stock Analysis

Alkhorayef Water & Power Technologies (TADAWUL:2081) Might Become A Compounding Machine

  •  Updated
SASE:2081
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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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Alkhorayef Water & Power Technologies' (TADAWUL:2081) 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 Alkhorayef Water & Power Technologies, this is the formula:

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

0.24 = ر.س113m ÷ (ر.س751m - ر.س288m) (Based on the trailing twelve months to December 2021).

Therefore, Alkhorayef Water & Power Technologies has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Water Utilities industry average of 7.4%.

Check out our latest analysis for Alkhorayef Water & Power Technologies

roce
SASE:2081 Return on Capital Employed April 25th 2022

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

How Are Returns Trending?

In terms of Alkhorayef Water & Power Technologies' history of ROCE, it's quite impressive. The company has consistently earned 24% for the last five years, and the capital employed within the business has risen 506% in that time. Now considering ROCE is an attractive 24%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Alkhorayef Water & Power Technologies has done well to reduce current liabilities to 38% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Alkhorayef Water & Power Technologies' ROCE

In short, we'd argue Alkhorayef Water & Power Technologies has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last year. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Alkhorayef Water & Power Technologies does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Alkhorayef Water & Power Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About SASE:2081

Alkhorayef Water & Power Technologies

Alkhorayef Water & Power Technologies designs, constructs, operates, maintains, and manages water and wastewater projects in Saudi Arabia.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth6
Past Performance2
Financial Health3
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Exceptional growth potential with mediocre balance sheet.