Clear Channel Outdoor Holdings (NYSE:CCO) Is Doing The Right Things To Multiply Its Share Price
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Clear Channel Outdoor Holdings (NYSE:CCO) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 Clear Channel Outdoor Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = US$290m ÷ (US$5.1b - US$1.1b) (Based on the trailing twelve months to December 2022).
Thus, Clear Channel Outdoor Holdings has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Media industry average of 9.4%.
See our latest analysis for Clear Channel Outdoor Holdings
Above you can see how the current ROCE for Clear Channel Outdoor Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Does the ROCE Trend For Clear Channel Outdoor Holdings Tell Us?
Clear Channel Outdoor Holdings is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 24% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On Clear Channel Outdoor Holdings' ROCE
In summary, we're delighted to see that Clear Channel Outdoor Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. However the stock is down a substantial 78% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
One final note, you should learn about the 3 warning signs we've spotted with Clear Channel Outdoor Holdings (including 1 which makes us a bit uncomfortable) .
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.
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