If you’re looking for a multi-bagger, there are a few things to watch out for. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount of capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. Therefore, when we briefly examined Dr Sulaiman Al Habib Medical Services Group (TADAWUL:4013) ROCE trend, we were pretty happy with what we saw.
Understanding return on capital employed (ROCE)
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for Dr Sulaiman Al Habib Medical Services Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.16 = ر.س1.5b ÷ (ر.س12b – ر.س2.4b) (Based on the last twelve months to March 2022).
Thereby, Dr. Sulaiman Al Habib Medical Services Group has a ROCE of 16%. In absolute terms, that’s a decent return, but compared to the healthcare industry average of 11%, it’s much better.
Check out our latest analysis for Dr. Sulaiman Al Habib Medical Services Group
In the table above, we have measured the past ROCE of Dr. Sulaiman Al Habib Medical Services Group against its past performance, but the future is arguably more important. If you want to see what analysts predict for the future, you should check out our free report for Dr. Sulaiman Al Habib Medical Services Group.
What the ROCE trend can tell us
While current capital returns are decent, they haven’t changed much. The company has consistently gained 16% over the past five years and the capital employed within the company has increased by 71% over this period. Since 16% is a moderate ROCE, it’s good to see that a company can continue to reinvest at these decent rates of return. Steady returns in this stage can be unexciting, but if they can be sustained over the long term, they often offer handsome rewards to shareholders.
The Key Takeaway
To sum up, Dr. Sulaiman Al Habib Medical Services Group has simply reinvested capital on a regular basis, at these decent rates of return. And the stock has followed suit, returning 23% to shareholders over the past year. So while the stock may be more “expensive” than it used to be, we believe the strong fundamentals warrant this stock for further research.
If you are still interested in Dr. Sulaiman Al Habib Medical Services Group, it is worth checking out our FREE Intrinsic Value Estimate to see if it is trading at an attractive price in other respects.
Although Dr. Sulaiman Al Habib Medical Services Group does not generate the highest return, check this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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