Slowing Rates Of Return At Millicom International Cellular (NASDAQ:TIGO) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Millicom International Cellular (NASDAQ:TIGO), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.064 = US$775m ÷ (US$15b - US$2.3b) (Based on the trailing twelve months to December 2023).

Thus, Millicom International Cellular has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Wireless Telecom industry average of 15%.

See our latest analysis for Millicom International Cellular

In the above chart we have measured Millicom International Cellular's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Millicom International Cellular .

What Does the ROCE Trend For Millicom International Cellular Tell Us?

In terms of Millicom International Cellular's historical ROCE trend, it doesn't exactly demand attention. The company has employed 60% more capital in the last five years, and the returns on that capital have remained stable at 6.4%. 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 Bottom Line On Millicom International Cellular's ROCE

Long story short, while Millicom International Cellular has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 54% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.