If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Clear Channel Outdoor Holdings (NYSE:CCO) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding 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 Clear Channel Outdoor Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = US$223m ÷ (US$4.8b - US$965m) (Based on the trailing twelve months to June 2023).
Therefore, Clear Channel Outdoor Holdings has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.2%.
In the above chart we have measured Clear Channel Outdoor Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Clear Channel Outdoor Holdings here for free.
What Can We Tell From Clear Channel Outdoor Holdings' ROCE Trend?
Over the past five years, Clear Channel Outdoor Holdings' ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Clear Channel Outdoor Holdings to be a multi-bagger going forward.
What We Can Learn From Clear Channel Outdoor Holdings' ROCE
We can conclude that in regards to Clear Channel Outdoor Holdings' returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 69% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Clear Channel Outdoor Holdings has the makings of a multi-bagger.
One more thing: We've identified 3 warning signs with Clear Channel Outdoor Holdings (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.
While Clear Channel Outdoor Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.