Stock Analysis

Many Would Be Envious Of Alkhorayef Water & Power Technologies' (TADAWUL:2081) Excellent Returns On Capital

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If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Alkhorayef Water & Power Technologies (TADAWUL:2081), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. 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)

0.21 = ر.س113m ÷ (ر.س876m - ر.س351m) (Based on the trailing twelve months to March 2022).

Thus, Alkhorayef Water & Power Technologies has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Water Utilities industry average of 7.6%.

See our latest analysis for Alkhorayef Water & Power Technologies

SASE:2081 Return on Capital Employed August 8th 2022

In the above chart we have measured Alkhorayef Water & Power Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Alkhorayef Water & Power Technologies here for free.

What Can We Tell From Alkhorayef Water & Power Technologies' ROCE Trend?

We'd be pretty happy with returns on capital like Alkhorayef Water & Power Technologies. The company has employed 540% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 40% of total assets, is good to see from a business owner's perspective. 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. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Bottom Line

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. However, over the last year, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you want to know some of the risks facing Alkhorayef Water & Power Technologies we've found 3 warning signs (2 are concerning!) that you should be aware of before investing here.

Alkhorayef Water & Power Technologies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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)
Future Growth6
Past Performance2
Financial Health3

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

Exceptional growth potential with mediocre balance sheet.