Atresmedia Corporación de Medios de Comunicación (BME:A3M) Has Some Way To Go To Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Atresmedia Corporación de Medios de Comunicación (BME:A3M) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Atresmedia Corporación de Medios de Comunicación:

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

0.18 = €173m ÷ (€1.5b - €557m) (Based on the trailing twelve months to December 2024).

So, Atresmedia Corporación de Medios de Comunicación has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Media industry.

View our latest analysis for Atresmedia Corporación de Medios de Comunicación

Above you can see how the current ROCE for Atresmedia Corporación de Medios de Comunicación 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 Atresmedia Corporación de Medios de Comunicación for free.

What Can We Tell From Atresmedia Corporación de Medios de Comunicación's ROCE Trend?

Things have been pretty stable at Atresmedia Corporación de Medios de Comunicación, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Atresmedia Corporación de Medios de Comunicación in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Atresmedia Corporación de Medios de Comunicación has been paying out 79% of its earnings to its 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 Key Takeaway

In a nutshell, Atresmedia Corporación de Medios de Comunicación has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 212% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 3 warning signs we've spotted with Atresmedia Corporación de Medios de Comunicación (including 2 which are a bit unpleasant) .

While Atresmedia Corporación de Medios de Comunicación isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.