Millicom International Cellular (NASDAQ:TIGO) Has Some Way To Go To Become A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after briefly looking over the numbers, we don't think Millicom International Cellular (NASDAQ:TIGO) 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)?

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)

0.069 = US$852m ÷ (US$14b - US$2.1b) (Based on the trailing twelve months to March 2023).

Therefore, Millicom International Cellular has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 8.8%.

Check out our latest analysis for Millicom International Cellular

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.

SWOT Analysis for Millicom International Cellular

How Are Returns Trending?

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 6.9% and the business has deployed 62% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In summary, Millicom International Cellular has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 61% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Millicom International Cellular (of which 2 are concerning!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.