Returns On Capital Signal Tricky Times Ahead For Al Seer Marine Supplies and Equipment Company PJSC (ADX:ASM)

Jun 27, 2023

Stock Analysis

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Al Seer Marine Supplies and Equipment Company PJSC (ADX:ASM) and its ROCE trend, we weren't exactly thrilled.

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Al Seer Marine Supplies and Equipment Company PJSC:

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

0.01 = د.إ96m ÷ (د.إ9.6b - د.إ259m) (Based on the trailing twelve months to December 2022).

So, Al Seer Marine Supplies and Equipment Company PJSC has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 6.7%.

Check out our latest analysis for Al Seer Marine Supplies and Equipment Company PJSC

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Al Seer Marine Supplies and Equipment Company PJSC's past further, check out this free graph of past earnings, revenue and cash flow.

On the surface, the trend of ROCE at Al Seer Marine Supplies and Equipment Company PJSC doesn't inspire confidence. To be more specific, ROCE has fallen from 22% over the last four years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Al Seer Marine Supplies and Equipment Company PJSC has done well to pay down its current liabilities to 2.7% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Al Seer Marine Supplies and Equipment Company PJSC. These growth trends haven't led to growth returns though, since the stock has fallen 38% over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing: We've identified 2 warning signs with Al Seer Marine Supplies and Equipment Company PJSC (at least 1 which is significant) , and understanding these would certainly be useful.

While Al Seer Marine Supplies and Equipment Company PJSC isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Find out whether Al Seer Marine Supplies and Equipment Company PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Al Seer Marine Supplies & Equipment Company P.J.S.C, together with its subsidiaries, engages in the construction, management, operation, and refurbishment of yachts and boats.

Slightly overvalued with imperfect balance sheet.