Investors Met With Slowing Returns on Capital At Hrvatski Telekom d.d (ZGSE:HT)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Hrvatski Telekom d.d (ZGSE:HT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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. Analysts use this formula to calculate it for Hrvatski Telekom d.d:

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

0.095 = €163m ÷ (€2.0b - €283m) (Based on the trailing twelve months to June 2024).

Therefore, Hrvatski Telekom d.d has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Telecom industry average of 9.7%.

See our latest analysis for Hrvatski Telekom d.d

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

So How Is Hrvatski Telekom d.d's ROCE Trending?

Over the past five years, Hrvatski Telekom d.d's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Hrvatski Telekom d.d to be a multi-bagger going forward.

The Bottom Line

In summary, Hrvatski Telekom d.d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 83% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Hrvatski Telekom d.d, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.