Return Trends At Síminn hf (ICE:SIMINN) Aren't Appealing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after investigating Síminn hf (ICE:SIMINN), we don't think it's current trends fit the mold of a multi-bagger.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Síminn hf:

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

0.093 = Kr3.1b ÷ (Kr42b - Kr9.0b) (Based on the trailing twelve months to March 2025).

Therefore, Síminn hf has an ROCE of 9.3%. In absolute terms, that's a low return but it's around the Telecom industry average of 11%.

View our latest analysis for Síminn hf

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Síminn hf's past further, check out this free graph covering Síminn hf's past earnings, revenue and cash flow.

What Does the ROCE Trend For Síminn hf Tell Us?

We're a bit concerned with the trends, because the business is applying 43% less capital than it was five years ago and returns on that capital have stayed flat. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. In addition to that, since the ROCE doesn't scream "quality" at 9.3%, it's hard to get excited about these developments.

In Conclusion...

In summary, Síminn hf isn't reinvesting funds back into the business and returns aren't growing. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 542% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Síminn hf (of which 1 is a bit concerning!) that you should know about.

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.