Is Telekom Slovenije d.d (LJSE:TLSG) A Future Multi-bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Telekom Slovenije d.d (LJSE:TLSG) and its trend of ROCE, we really liked what we saw.

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 Telekom Slovenije d.d:

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

0.043 = €39m ÷ (€1.2b - €319m) (Based on the trailing twelve months to September 2020).

Thus, Telekom Slovenije d.d has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Telecom industry average of 8.0%.

Check out our latest analysis for Telekom Slovenije d.d

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 want to delve into the historical earnings, revenue and cash flow of Telekom Slovenije d.d, check out these free graphs here.

What Can We Tell From Telekom Slovenije d.d's ROCE Trend?

While there are companies with higher returns on capital out there, we still find the trend at Telekom Slovenije d.d promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 403% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Telekom Slovenije d.d's ROCE

To bring it all together, Telekom Slovenije d.d has done well to increase the returns it's generating from its capital employed. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Telekom Slovenije d.d, we've spotted 5 warning signs, and 1 of them is a bit unpleasant.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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