National Corporation for Tourism and Hotels (ADX:NCTH) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at National Corporation for Tourism and Hotels (ADX:NCTH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for National Corporation for Tourism and Hotels:

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

0.028 = د.إ72m ÷ (د.إ2.8b - د.إ243m) (Based on the trailing twelve months to September 2022).

Therefore, National Corporation for Tourism and Hotels has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 4.7%.

Check out our latest analysis for National Corporation for Tourism and Hotels

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating National Corporation for Tourism and Hotels' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From National Corporation for Tourism and Hotels' ROCE Trend?

On the surface, the trend of ROCE at National Corporation for Tourism and Hotels doesn't inspire confidence. To be more specific, ROCE has fallen from 5.4% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From National Corporation for Tourism and Hotels' ROCE

Bringing it all together, while we're somewhat encouraged by National Corporation for Tourism and Hotels' reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 141% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know more about National Corporation for Tourism and Hotels, we've spotted 3 warning signs, and 2 of them don't sit too well with us.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.