Yahoo Finance Hotel Properties (SGX:H15) Will Want To Turn Around Its Return Trends
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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Hotel Properties (SGX:H15) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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 Hotel Properties is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.017 = S$69m ÷ (S$4.2b - S$217m) (Based on the trailing twelve months to December 2023).
Thus, Hotel Properties has an ROCE of 1.7%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 4.1%.
Check out our latest analysis for Hotel Properties
Historical performance is a great place to start when researching a stock so above you can see the gauge for Hotel Properties' ROCE against it's prior returns. If you'd like to look at how Hotel Properties has performed in the past in other metrics, you can view this free graph of Hotel Properties' past earnings, revenue and cash flow.
How Are Returns Trending?
When we looked at the ROCE trend at Hotel Properties, we didn't gain much confidence. To be more specific, ROCE has fallen from 2.7% over the last five years. 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 Bottom Line On Hotel Properties' ROCE
While returns have fallen for Hotel Properties in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 0.2% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
One final note, you should learn about the 2 warning signs we've spotted with Hotel Properties (including 1 which shouldn't be ignored) .
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
