Investors Met With Slowing Returns on Capital At Millicom International Cellular (NASDAQ:TIGO)

Published
June 02, 2022
NasdaqGS:TIGO
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Millicom International Cellular (NASDAQ:TIGO), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Millicom International Cellular:

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

0.054 = US$633m ÷ (US$15b - US$3.5b) (Based on the trailing twelve months to March 2022).

Thus, Millicom International Cellular has an ROCE of 5.4%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.

Check out our latest analysis for Millicom International Cellular

roce
NasdaqGS:TIGO Return on Capital Employed June 2nd 2022

Above you can see how the current ROCE for Millicom International Cellular 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 Millicom International Cellular here for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Millicom International Cellular in recent years. Over the past five years, ROCE has remained relatively flat at around 5.4% and the business has deployed 50% 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, Millicom International Cellular's 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 61% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Millicom International Cellular does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While Millicom International Cellular 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.

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.

About NasdaqGS:TIGO

Millicom International Cellular

Millicom International Cellular S.A. provides cable and mobile services in Latin America and Africa.

Very undervalued with limited growth.