United States Cellular (NYSE:USM) Might Have The Makings Of A Multi-Bagger

By
Simply Wall St
Published
August 03, 2021
NYSE:USM
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Speaking of which, we noticed some great changes in United States Cellular's (NYSE:USM) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for United States Cellular, this is the formula:

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

0.024 = US$227m ÷ (US$10b - US$739m) (Based on the trailing twelve months to March 2021).

Therefore, United States Cellular has an ROCE of 2.4%. Even though it's in line with the industry average of 2.5%, it's still a low return by itself.

Check out our latest analysis for United States Cellular

roce
NYSE:USM Return on Capital Employed August 3rd 2021

Above you can see how the current ROCE for United States Cellular compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for United States Cellular.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 2.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 49% more capital is being employed now too. So we're very much inspired by what we're seeing at United States Cellular thanks to its ability to profitably reinvest capital.

Our Take On United States Cellular's ROCE

To sum it up, United States Cellular has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 16% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

United States Cellular does have some risks though, and we've spotted 3 warning signs for United States Cellular that you might be interested in.

While United States 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.

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