Consolidated Communications Holdings (NASDAQ:CNSL) Hasn't Managed To Accelerate Its Returns

By
Simply Wall St
Published
March 07, 2022
NasdaqGS:CNSL
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Consolidated Communications Holdings (NASDAQ:CNSL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Consolidated Communications Holdings:

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

0.041 = US$141m ÷ (US$3.7b - US$286m) (Based on the trailing twelve months to December 2021).

Thus, Consolidated Communications Holdings has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 8.3%.

See our latest analysis for Consolidated Communications Holdings

roce
NasdaqGS:CNSL Return on Capital Employed March 7th 2022

Above you can see how the current ROCE for Consolidated 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.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Consolidated Communications Holdings in recent years. Over the past five years, ROCE has remained relatively flat at around 4.1% and the business has deployed 76% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

Long story short, while Consolidated Communications Holdings has been reinvesting its capital, the returns that it's generating haven't increased. Moreover, since the stock has crumbled 71% over the last five years, it appears investors are expecting the worst. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 2 warning signs for Consolidated Communications Holdings you'll probably want to know about.

While Consolidated Communications 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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.