Cambium Networks (NASDAQ:CMBM), a communications company, has been met with slowing returns on capital, according to investors. However, a closer look at the company’s trend of Return on Capital Employed (ROCE) reveals positive indicators. ROCE measures the amount of pre-tax profits a company can generate from its capital employed. In the case of Cambium Networks, its ROCE stands at 15%, which is significantly higher than the industry average of 9.9%. This suggests that the company has a great business model and profitable reinvestment opportunities.
While the trend of ROCE may not be particularly outstanding, the overall returns on capital are satisfactory. Over the past five years, Cambium Networks has consistently earned a 15% return, while also investing 168% more capital into its operations. Though not overly exciting, these consistent returns can pay off in terms of share price returns over the long term.
Another noteworthy achievement for Cambium Networks is its reduction of current liabilities to 33% of total assets over the last five years. This means that suppliers now fund less of the business, lowering certain elements of risk.
The company has proven its ability to reinvest capital at respectable rates of return, and the market seems to be recognizing these trends. Despite only witnessing a 20% rise in stock price over the last three years, there may be more potential for this stock to become a multi-bagger investment.
It is important to note that there are two warning signs to consider with Cambium Networks, one of which is significant. However, many companies currently earn more than a 25% return on equity, so investors may want to explore alternate options.
Overall, Cambium Networks’ ROCE indicates a promising business model with potential for long-term growth. The company’s consistent returns and reduced liabilities provide further confidence in its performance. Investors should carefully consider these factors before making any investment decisions.
Please note that this article is based on historical data and analyst forecasts, and should not be considered financial advice.
