1&1 (ETR:1U1) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating 1&1 (ETR:1U1), we don't think it's current trends fit the mold of a multi-bagger.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

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. The formula for this calculation on 1&1 is:

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

0.066 = €513m ÷ (€8.5b - €752m) (Based on the trailing twelve months to June 2025).

Therefore, 1&1 has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 9.2%.

View our latest analysis for 1&1

In the above chart we have measured 1&1's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering 1&1 for free.

So How Is 1&1's ROCE Trending?

On the surface, the trend of ROCE at 1&1 doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.6% from 13% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On 1&1's ROCE

To conclude, we've found that 1&1 is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 10% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think 1&1 has the makings of a multi-bagger.

On a separate note, we've found 2 warning signs for 1&1 you'll probably want to know about.

While 1&1 isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.