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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 briefly looking over the numbers, we don't think Altice USA (NYSE:ATUS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Altice USA:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = US$1.7b ÷ (US$32b - US$2.3b) (Based on the trailing twelve months to December 2024).
Thus, Altice USA has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Media industry average of 8.7%.
View our latest analysis for Altice USA
In the above chart we have measured Altice USA's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Altice USA .
The Trend Of ROCE
There hasn't been much to report for Altice USA's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Altice USA doesn't end up being a multi-bagger in a few years time.
The Bottom Line On Altice USA's ROCE
In summary, Altice USA isn't compounding its earnings but is generating stable returns on the same amount of capital employed. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 90% 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.
On a separate note, we've found 3 warning signs for Altice USA you'll probably want to know about.