To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Clear Channel Outdoor Holdings (NYSE:CCO) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its 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)

0.077 = US$290m ÷ (US$4.6b - US$904m) (Based on the trailing twelve months to September 2024).

So, Clear Channel Outdoor Holdings has an ROCE of 7.7%. In absolute terms, that's a low return but it's around the Media industry average of 9.6%.

See our latest analysis for Clear Channel Outdoor Holdings

Above you can see how the current ROCE for Clear Channel Outdoor Holdings 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 analyst report for Clear Channel Outdoor Holdings .

What Does the ROCE Trend For Clear Channel Outdoor Holdings Tell Us?

Clear Channel Outdoor Holdings has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 38%. The company is now earning US$0.08 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

In summary, it's great to see that Clear Channel Outdoor Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 49% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 2 warning signs for Clear Channel Outdoor Holdings (1 doesn't sit too well with us) you should be aware of.

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.