Stock Analysis

Some Investors May Be Worried About TTEC Holdings' (NASDAQ:TTEC) Returns On Capital

NasdaqGS:TTEC
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think TTEC Holdings (NASDAQ:TTEC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TTEC Holdings, this is the formula:

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

0.11 = US$190m ÷ (US$2.1b - US$435m) (Based on the trailing twelve months to March 2023).

Therefore, TTEC Holdings has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Professional Services industry average of 12%.

See our latest analysis for TTEC Holdings

roce
NasdaqGS:TTEC Return on Capital Employed June 23rd 2023

In the above chart we have measured TTEC Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for TTEC Holdings

Strength
  • Debt is well covered by earnings.
  • Dividends are covered by earnings and cash flows.
Weakness
  • Earnings declined over the past year.
  • Dividend is low compared to the top 25% of dividend payers in the Professional Services market.
  • Expensive based on P/E ratio and estimated fair value.
Opportunity
  • Significant insider buying over the past 3 months.
Threat
  • Debt is not well covered by operating cash flow.
  • Annual earnings are forecast to decline for the next 2 years.

The Trend Of ROCE

When we looked at the ROCE trend at TTEC Holdings, we didn't gain much confidence. To be more specific, ROCE has fallen from 15% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by TTEC Holdings' reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 9.0% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about TTEC Holdings, we've spotted 4 warning signs, and 2 of them are concerning.

While TTEC Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're here to simplify it.

Discover if TTEC Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.