Constantinou Bros Hotels (CSE:CBH) Has Some Way To Go To Become A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Constantinou Bros Hotels (CSE:CBH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Constantinou Bros Hotels:

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

0.058 = €12m ÷ (€235m - €31m) (Based on the trailing twelve months to December 2023).

Thus, Constantinou Bros Hotels has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.0%.

View our latest analysis for Constantinou Bros 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'd like to look at how Constantinou Bros Hotels has performed in the past in other metrics, you can view this free graph of Constantinou Bros Hotels' past earnings, revenue and cash flow.

What Does the ROCE Trend For Constantinou Bros Hotels Tell Us?

Things have been pretty stable at Constantinou Bros Hotels, with its capital employed and returns on that capital staying somewhat the same for the last 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 unless we see a substantial change at Constantinou Bros Hotels in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Constantinou Bros Hotels' ROCE

In a nutshell, Constantinou Bros Hotels has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 18% in the last five years. Therefore based on the analysis done in this article, we don't think Constantinou Bros Hotels has the makings of a multi-bagger.

If you'd like to know more about Constantinou Bros Hotels, we've spotted 3 warning signs, and 2 of them are significant.

While Constantinou Bros Hotels may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.