The Returns At TAJGVK Hotels & Resorts (NSE:TAJGVK) Provide Us With Signs Of What's To Come

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at TAJGVK Hotels & Resorts (NSE:TAJGVK), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for TAJGVK Hotels & Resorts, this is the formula:

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

0.04 = ₹260m ÷ (₹7.4b - ₹832m) (Based on the trailing twelve months to June 2020).

Thus, TAJGVK Hotels & Resorts has an ROCE of 4.0%. In absolute terms, that's a low return but it's around the Hospitality industry average of 4.8%.

See our latest analysis for TAJGVK Hotels & Resorts

Historical performance is a great place to start when researching a stock so above you can see the gauge for TAJGVK Hotels & Resorts' ROCE against it's prior returns. If you're interested in investigating TAJGVK Hotels & Resorts' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From TAJGVK Hotels & Resorts' ROCE Trend?

There hasn't been much to report for TAJGVK Hotels & Resorts' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if TAJGVK Hotels & Resorts doesn't end up being a multi-bagger in a few years time.

What We Can Learn From TAJGVK Hotels & Resorts' ROCE

In summary, TAJGVK Hotels & Resorts isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Although the market must be expecting these trends to improve because the stock has gained 94% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

TAJGVK Hotels & Resorts does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

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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