To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. That's why when we briefly looked at Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) ROCE trend, we were pretty happy with what we saw.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = Ft121b ÷ (Ft1.4t - Ft324b) (Based on the trailing twelve months to June 2023).
Thus, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.2% generated by the Telecom industry.
Above you can see how the current ROCE for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság.
What The Trend Of ROCE Can Tell Us
While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 33% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line On Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's ROCE
The main thing to remember is that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
If you want to continue researching Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság 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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Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság
Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság provides fixed-line and mobile telecommunication services for residential and small business customers in Hungary, Bulgaria, Romania, and the Republic of North Macedonia.
Good value with moderate growth potential.