To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Millicom International Cellular (NASDAQ:TIGO), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Millicom International Cellular:

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

0.065 = US$800m ÷ (US$14b - US$2.2b) (Based on the trailing twelve months to September 2023).

Therefore, Millicom International Cellular has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 16%.

View our latest analysis for Millicom International Cellular

Above you can see how the current ROCE for Millicom International Cellular 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 Millicom International Cellular.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Millicom International Cellular in recent years. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 74% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Millicom International Cellular has been investing more capital into the business, but returns on that capital haven't increased. And in the last five years, the stock has given away 63% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Millicom International Cellular, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

While Millicom International Cellular may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.