Stock Analysis

Returns On Capital Are Showing Encouraging Signs At Cogent Communications Holdings (NASDAQ:CCOI)

  •  Updated
NasdaqGS:CCOI
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Cogent Communications Holdings (NASDAQ:CCOI) so let's look a bit deeper.

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. To calculate this metric for Cogent Communications Holdings, this is the formula:

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

0.12 = US$108m ÷ (US$1.0b - US$94m) (Based on the trailing twelve months to June 2021).

Therefore, Cogent Communications Holdings has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Telecom industry.

View our latest analysis for Cogent Communications Holdings

roce
NasdaqGS:CCOI Return on Capital Employed September 6th 2021

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'd like to see what analysts are forecasting going forward, you should check out our free report for Cogent Communications Holdings.

What Does the ROCE Trend For Cogent Communications Holdings Tell Us?

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 company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 64%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On 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 staggering 160% to shareholders over the last five years, it looks like investors are recognizing 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.

On a final note, we found 6 warning signs for Cogent Communications Holdings (3 are a bit concerning) you should be aware of.

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.

When trading Cogent Communications Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Cogent Communications Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis