Return Trends At Sudatel Telecom Group (ADX:SUDATEL) Aren't Appealing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Sudatel Telecom Group's (ADX:SUDATEL) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Sudatel Telecom Group is:

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

0.14 = US$115m ÷ (US$1.4b - US$528m) (Based on the trailing twelve months to March 2023).

Thus, Sudatel Telecom Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 12% it's much better.

Check out our latest analysis for Sudatel Telecom Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sudatel Telecom Group's ROCE against it's prior returns. If you're interested in investigating Sudatel Telecom Group's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Sudatel Telecom Group's ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has employed 53% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that Sudatel Telecom Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

The main thing to remember is that Sudatel Telecom Group has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 15%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Sudatel Telecom Group does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Sudatel Telecom Group 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.

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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.