Returns Are Gaining Momentum At Iridium Communications (NASDAQ:IRDM)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Iridium Communications (NASDAQ:IRDM) so let's look a bit deeper.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Understanding 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 Iridium Communications:

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

0.089 = US$221m ÷ (US$2.6b - US$102m) (Based on the trailing twelve months to June 2025).

Thus, Iridium Communications has an ROCE of 8.9%. In absolute terms, that's a low return, but it's much better than the Telecom industry average of 7.4%.

Check out our latest analysis for Iridium Communications

Above you can see how the current ROCE for Iridium Communications 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 Iridium Communications for free.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Iridium Communications. The figures show that over the last five years, returns on capital have grown by 1,041%. The company is now earning US$0.09 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 25% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

In summary, it's great to see that Iridium Communications has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 20% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Iridium Communications does come with some risks, and we've found 1 warning sign that you should be aware of.

While Iridium Communications may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.