If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at International Holding Company PJSC (ADX:IHC) and its trend of ROCE, we really liked what we saw.
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on International Holding Company PJSC is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.016 = د.إ2.9b ÷ (د.إ230b - د.إ45b) (Based on the trailing twelve months to June 2023).
So, International Holding Company PJSC has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Industrials industry average of 3.0%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for International Holding Company PJSC's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of International Holding Company PJSC, check out these free graphs here.
The fact that International Holding Company PJSC is now generating some pre-tax profits from its prior investments is very encouraging. About four years ago the company was generating losses but things have turned around because it's now earning 1.6% on its capital. In addition to that, International Holding Company PJSC is employing 11,935% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In summary, it's great to see that International Holding Company PJSC has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 969% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a separate note, we've found 2 warning signs for International Holding Company PJSC you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.