U.S. markets closed
  • S&P Futures

    3,857.75
    +18.75 (+0.49%)
     
  • Dow Futures

    31,659.00
    +194.00 (+0.62%)
     
  • Nasdaq Futures

    12,689.25
    +25.50 (+0.20%)
     
  • Russell 2000 Futures

    2,215.90
    +26.20 (+1.20%)
     
  • Crude Oil

    67.26
    +1.17 (+1.77%)
     
  • Gold

    1,707.70
    +9.20 (+0.54%)
     
  • Silver

    25.57
    +0.28 (+1.10%)
     
  • EUR/USD

    1.1926
    -0.0053 (-0.44%)
     
  • 10-Yr Bond

    1.5540
    +0.0040 (+0.26%)
     
  • Vix

    24.66
    -3.91 (-13.69%)
     
  • GBP/USD

    1.3853
    -0.0041 (-0.29%)
     
  • USD/JPY

    108.4100
    +0.4340 (+0.40%)
     
  • BTC-USD

    51,111.89
    +2,159.02 (+4.41%)
     
  • CMC Crypto 200

    982.93
    +39.75 (+4.21%)
     
  • FTSE 100

    6,630.52
    -20.36 (-0.31%)
     
  • Nikkei 225

    28,864.32
    -65.78 (-0.23%)
     

Our Take On The Returns On Capital At Altice USA (NYSE:ATUS)

  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Altice USA (NYSE:ATUS), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. The formula for this calculation on Altice USA is:

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

0.064 = US$2.0b ÷ (US$34b - US$2.0b) (Based on the trailing twelve months to September 2020).

Therefore, Altice USA has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.6%.

Check out our latest analysis for Altice USA

roce
roce

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 report on analyst forecasts for the company.

What Can We Tell From Altice USA's ROCE Trend?

In terms of Altice USA's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 18% over the last five years. However it looks like Altice USA might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Altice USA has done well to pay down its current liabilities to 5.8% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line On Altice USA's ROCE

Bringing it all together, while we're somewhat encouraged by Altice USA's reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 87% over the last three years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Altice USA (of which 1 is concerning!) that you should know about.

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.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.