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

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in ACWA POWER's (TADAWUL:2082) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for ACWA POWER:

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

0.058 = ر.س2.7b ÷ (ر.س55b - ر.س7.9b) (Based on the trailing twelve months to December 2023).

Therefore, ACWA POWER has an ROCE of 5.8%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 7.0%.

See our latest analysis for ACWA POWER

In the above chart we have measured ACWA POWER's 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 ACWA POWER for free.

What Can We Tell From ACWA POWER's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 54%. So we're very much inspired by what we're seeing at ACWA POWER thanks to its ability to profitably reinvest capital.

The Bottom Line On 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. And with a respectable 90% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, ACWA POWER does come with some risks, and we've found 1 warning sign that 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.