When looking to find companies that could potentially be multi-baggers, there are often underlying trends that can provide clues. First, identify an increasing return on invested capital (ROCE) along with a consistently growing invested capital base. Ultimately, this indicates a company that is reinvesting profits at an increasing rate of return. With that in mind, we weren’t too excited when we looked at Emirates Telecommunications Group Company PJSC (ADX:EAND) and its ROCE trend.
What is Return on Invested Capital (ROCE)?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (revenue) relative to the capital employed in the business. The formula to calculate this metric for Emirates Telecommunications Group Company PJSC is:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.13 = د.إ13b ÷ (د.إ148b – د.إ48b) (Based on the trailing twelve months to March 2024).
Therefore, Emirates Telecommunications Group Company PJSC has an ROCE of 13%, which is a relatively normal return on capital and roughly the same as the 11% generated by the telecommunications industry.
View our latest analysis for Emirates Telecommunications Group Company PJSC
ADX:EAND Return on Invested Capital July 21, 2024
In the chart above we’ve measured Emirates Telecommunications Group Company PJSC’s prior ROCE against its previous performance, but the future is arguably more important: if you want to see what analysts are predicting going forward you can check out this free analyst report on Emirates Telecommunications Group Company PJSC.
What can Emirates Telecommunications Group Company PJSC’s ROCE trend tell us?
Looking at Emirates Telecommunications Group Company PJSC’s ROCE trend doesn’t give us much confidence. Over the past five years, return on capital has fallen to 13% from 18% five years ago. However, it appears that Emirates Telecommunications Group Company PJSC is reinvesting in its long-term growth, as the company’s revenue has not changed much over the past 12 months, despite an increase in invested capital. It may be some time before we start seeing a change in returns from these investments.
A look at Emirates Telecommunications Group PJSC’s ROCE
In summary, we are somewhat encouraged by Emirates Telecommunications Group Company’s (PJSC) reinvestment in its own business, but we recognize that returns are shrinking. And we would say the company is aware of this underperformance, as its share price has returned just 14% to shareholders over the past five years. So, if you’re looking for a multi-bagger, other stocks may offer better opportunities given the underlying trends.
Additionally, we’ve found 1 warning sign for Emirates Telecommunications Group Company PJSC that you should be aware of.
Emirates Telecommunications Group Company PJSC may not be currently earning the highest profit margins, but we’ve compiled a list of companies currently earning a return on equity above 25% – take a look at this free list here.
Valuation is complicated, but we can help make it simple.
Find out whether Emirates Telecommunications Group Company PJSC is potentially overvalued or undervalued by checking our comprehensive analysis, including fair value estimates, risks and warnings, dividends, insider trading, financial position and more.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.
Valuation is complicated, but we can help make it simple.
Check out our comprehensive analysis including fair value estimates, risks and warnings, dividends, insider trading and financial health to find out if Emirates Telecommunications Group Company PJSC is potentially overvalued or undervalued.
View your free analysis
Have something to say about this article? If you have any questions about the content, please contact us directly or email us at editorial-team@simplywallst.com.
