Stock Analysis

Cogent Communications Holdings (NASDAQ:CCOI) Is Doing The Right Things To Multiply Its Share Price

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NasdaqGS:CCOI
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, we've noticed some promising trends at Cogent Communications Holdings (NASDAQ:CCOI) so let's look a bit deeper.

What is 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. The formula for this calculation on Cogent Communications Holdings is:

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

0.12 = US$112m ÷ (US$985m - US$81m) (Based on the trailing twelve months to December 2021).

Therefore, Cogent Communications Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Telecom industry.

Check out our latest analysis for Cogent Communications Holdings

roce
NasdaqGS:CCOI Return on Capital Employed April 28th 2022

Above you can see how the current ROCE for Cogent Communications Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The trends we've noticed at Cogent Communications Holdings are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Cogent Communications Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From Cogent Communications Holdings' ROCE

All in all, it's terrific to see that Cogent Communications Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 77% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Cogent Communications Holdings (of which 3 are potentially serious!) 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.

What are the risks and opportunities for Cogent Communications Holdings?

Cogent Communications Holdings, Inc., through its subsidiaries, provides high-speed Internet access, private network, and data center colocation space services in North America, Europe, Asia, South America, Australia, and Africa.

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Rewards

  • Earnings are forecast to grow 31.84% per year

Risks

  • Interest payments are not well covered by earnings

  • Negative shareholders equity

  • Significant insider selling over the past 3 months

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Cogent Communications Holdings

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