Nasdaq
华尔街日报Saudi Automotive Services (TADAWUL:4050) Will Want To Turn Around Its Return Trends
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after investigating Saudi Automotive Services (TADAWUL:4050), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Saudi Automotive Services, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = ر.س181m ÷ (ر.س6.9b - ر.س1.9b) (Based on the trailing twelve months to September 2025).
So, Saudi Automotive Services has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 10%.
See our latest analysis for Saudi Automotive Services
Above you can see how the current ROCE for Saudi Automotive Services compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Saudi Automotive Services for free.
What The Trend Of ROCE Can Tell Us
In terms of Saudi Automotive Services' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 6.2%, but since then they've fallen to 3.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
What We Can Learn From Saudi Automotive Services' ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Saudi Automotive Services is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 106% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.
One more thing: We've identified 4 warning signs with Saudi Automotive Services (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.
While Saudi Automotive Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.