To find multibagger stocks, what are the fundamental trends of companies? One common approach is to look for companies that: Return value Capital employed increasing with growth (ROCE) amount of capital employed. After all, this shows that this is a business that is increasing its profitability and reinvesting its profits. But when we saw verizon communications (NYSE:VZ), doesn't seem to check all of those boxes.
Return on Capital Employed (ROCE): What is it?
In case you're not familiar, ROCE is a metric that measures how much pre-tax profit (as a percentage) a company earns on the capital invested in its business. To calculate this metric for Verizon Communications, use the following formula:
Return on capital employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.093 = USD 30 billion ÷ (USD 380 billion – USD 53 billion) (Based on the previous 12 months to December 2023).
therefore, Verizon Communications' ROCE is 9.3%. While this is a low absolute return, it is much better than the telecom industry average of 5.6%.
Check out our latest analysis for Verizon Communications.
Above you can see how Verizon Communications' current ROCE compares to its previous return on equity, but history can only tell us so much. If you want, check out forecasts from the analysts covering Verizon Communications. free.
What are the return trends like?
On the surface, the ROCE trend at Verizon Communications does not inspire confidence. Over the past five years, the return on capital has declined from 13% five years ago to 9.3%. On the other hand, the company is deploying more capital without seeing any improvement in sales over the last year, which could suggest that these investments are a long-term strategy. It could be some time before the company starts to see a change in returns from these investments.
conclusion
In summary, Verizon Communications is reinvesting money into the business for growth, but unfortunately it doesn't seem like revenue is increasing much yet. Unsurprisingly, total returns to shareholders have been flat over the past five years. Overall, the inherent tendency is not unique to multibaggers, so we think if that's what you're looking for, you might have better luck elsewhere.
Like most companies, Verizon Communications is subject to some risks. 5 warning signs What you need to know.
While Verizon Communications doesn't have the highest profit margin at the moment, we've compiled a list of companies that currently have a return on equity of 25% or higher.check this out free I'll list them here.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
