Stock Analysis

Investors Shouldn't Overlook Hellenic Telecommunications Organization's (ATH:HTO) Impressive Returns On Capital

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ATSE:HTO
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Hellenic Telecommunications Organization's (ATH:HTO) look very promising so lets take a look.

Understanding 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 Hellenic Telecommunications Organization:

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

0.24 = €725m ÷ (€5.6b - €2.5b) (Based on the trailing twelve months to June 2022).

Therefore, Hellenic Telecommunications Organization has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Telecom industry average of 9.4%.

Check out our latest analysis for Hellenic Telecommunications Organization

roce
ATSE:HTO Return on Capital Employed October 3rd 2022

Above you can see how the current ROCE for Hellenic Telecommunications Organization compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at Hellenic Telecommunications Organization. The figures show that over the last five years, returns on capital have grown by 150%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 30% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Hellenic Telecommunications Organization may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a separate but related note, it's important to know that Hellenic Telecommunications Organization has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In the end, Hellenic Telecommunications Organization has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 81% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Hellenic Telecommunications Organization can keep these trends up, it could have a bright future ahead.

Hellenic Telecommunications Organization does have some risks though, and we've spotted 1 warning sign for Hellenic Telecommunications Organization that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Hellenic Telecommunications Organization is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About ATSE:HTO

Hellenic Telecommunications Organization

Hellenic Telecommunications Organization S.A., together with its subsidiaries, provides telecommunications and related services to businesses and individuals primarily in Greece and Romania.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth3
Past Performance6
Financial Health4
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Outstanding track record with adequate balance sheet.