Shareholders Would Enjoy A Repeat Of Hellenic Telecommunications Organization's (ATH:HTO) Recent Growth In Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. 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.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Hellenic Telecommunications Organization, this is the formula:

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

0.23 = €763m ÷ (€5.1b - €1.7b) (Based on the trailing twelve months to September 2024).

Therefore, Hellenic Telecommunications Organization has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Telecom industry average of 10%.

View our latest analysis for Hellenic Telecommunications Organization

In the above chart we have measured Hellenic Telecommunications Organization'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 Hellenic Telecommunications Organization for free.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Hellenic Telecommunications Organization. The figures show that over the last five years, returns on capital have grown by 86%. The company is now earning €0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 20% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

In Conclusion...

In the end, Hellenic Telecommunications Organization has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has only returned 30% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for HTO on our platform that is definitely worth checking out.

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.

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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.