Will Telefónica Chile (SNSE:CTC) Multiply In Value Going Forward?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Telefónica Chile (SNSE:CTC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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 Telefónica Chile is:

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

0.035 = CL$49b ÷ (CL$1.7t - CL$280b) (Based on the trailing twelve months to September 2020).

So, Telefónica Chile has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Telecom industry average of 4.7%.

See our latest analysis for Telefónica Chile

Historical performance is a great place to start when researching a stock so above you can see the gauge for Telefónica Chile's ROCE against it's prior returns. If you'd like to look at how Telefónica Chile has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Telefónica Chile's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Telefónica Chile doesn't end up being a multi-bagger in a few years time.

What We Can Learn From Telefónica Chile's ROCE

We can conclude that in regards to Telefónica Chile's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 2.7% over the last year, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know more about Telefónica Chile, we've spotted 3 warning signs, and 2 of them are significant.

While Telefónica Chile 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. 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.
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