Cumulus Media (NASDAQ:CMLS) Has More To Do To Multiply In Value Going Forward
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Cumulus Media (NASDAQ:CMLS), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Cumulus Media:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = US$102m ÷ (US$1.6b - US$146m) (Based on the trailing twelve months to December 2022).
So, Cumulus Media has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.4%.
View our latest analysis for Cumulus Media
Above you can see how the current ROCE for Cumulus Media 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 Cumulus Media.
What Can We Tell From Cumulus Media's ROCE Trend?
Over the past five years, Cumulus Media's ROCE has remained relatively flat while the business is using 22% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.
The Bottom Line On Cumulus Media's ROCE
In summary, Cumulus Media isn't reinvesting funds back into the business and returns aren't growing. Since the stock has declined 31% over the last three years, investors may not be too optimistic on this trend improving either. 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.
One more thing: We've identified 3 warning signs with Cumulus Media (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.
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.
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