The Returns At Telenet Group Holding (EBR:TNET) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Telenet Group Holding (EBR:TNET) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Telenet Group Holding:

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

0.15 = €599m ÷ (€5.6b - €1.5b) (Based on the trailing twelve months to December 2021).

So, Telenet Group Holding has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Media industry average of 13%.

View our latest analysis for Telenet Group Holding

Above you can see how the current ROCE for Telenet Group Holding 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 Telenet Group Holding here for free.

So How Is Telenet Group Holding's ROCE Trending?

Things have been pretty stable at Telenet Group Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Telenet Group Holding to be a multi-bagger going forward. On top of that you'll notice that Telenet Group Holding has been paying out a large portion (87%) of earnings in the form of dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

The Bottom Line

We can conclude that in regards to Telenet Group Holding's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 34% in the last five years. Therefore based on the analysis done in this article, we don't think Telenet Group Holding has the makings of a multi-bagger.

Telenet Group Holding does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those make us uncomfortable...

While Telenet Group Holding 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.