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

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after briefly looking over the numbers, we don't think Consolidated Communications Holdings (NASDAQ:CNSL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.038 = US$126m ÷ (US$3.6b - US$302m) (Based on the trailing twelve months to March 2022).

So, Consolidated Communications Holdings has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Telecom industry average of 8.4%.

Check out our latest analysis for Consolidated Communications Holdings

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'd like, you can check out the forecasts from the analysts covering Consolidated Communications Holdings here for free.

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 3.8% and the business has deployed 72% 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.

The Bottom Line

As we've seen above, Consolidated Communications Holdings' returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 56% in the last five years. 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.

Consolidated Communications Holdings does have some risks though, and we've spotted 3 warning signs for Consolidated Communications Holdings that you might be interested in.

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.

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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.