ACWA POWER (TADAWUL:2082) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, ACWA POWER (TADAWUL:2082) looks quite promising in regards to its trends of return on capital.

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 ACWA POWER, this is the formula:

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

0.05 = ر.س2.3b ÷ (ر.س53b - ر.س6.8b) (Based on the trailing twelve months to June 2023).

So, ACWA POWER has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 7.1%.

Check out our latest analysis for ACWA POWER

Above you can see how the current ROCE for ACWA POWER compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ACWA POWER.

So How Is ACWA POWER's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.0%. The amount of capital employed has increased too, by 56%. So we're very much inspired by what we're seeing at ACWA POWER thanks to its ability to profitably reinvest capital.

What We Can Learn From ACWA POWER's ROCE

All in all, it's terrific to see that ACWA POWER is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 6.2% to shareholders over the last year, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we've found 1 warning sign for ACWA POWER that we think you should be aware of.

While ACWA POWER isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.