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Gamma Communications (LON:GAMA) Might Be Having Difficulty Using Its Capital Effectively

Simply Wall St · 4d ago

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Having said that, while the ROCE is currently high for Gamma Communications (LON:GAMA), we aren't jumping out of our chairs because returns are decreasing.

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What Is 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. The formula for this calculation on Gamma Communications is:

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

0.20 = UK£98m ÷ (UK£628m - UK£133m) (Based on the trailing twelve months to June 2025).

Thus, Gamma Communications has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Telecom industry average of 10%.

Check out our latest analysis for Gamma Communications

roce
LSE:GAMA Return on Capital Employed January 7th 2026

Above you can see how the current ROCE for Gamma Communications 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 Gamma Communications .

The Trend Of ROCE

On the surface, the trend of ROCE at Gamma Communications doesn't inspire confidence. While it's comforting that the ROCE is high, five years ago it was 26%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Gamma Communications. And there could be an opportunity here if other metrics look good too, because the stock has declined 42% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

While Gamma Communications doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for GAMA on our platform.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.