Investors Met With Slowing Returns on Capital At Leptos Calypso Hotels (CSE:LCH)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Leptos Calypso Hotels (CSE:LCH) 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)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Leptos Calypso Hotels:

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

0.028 = €4.0m ÷ (€162m - €20m) (Based on the trailing twelve months to June 2024).

Therefore, Leptos Calypso Hotels has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 5.8%.

View our latest analysis for Leptos Calypso Hotels

Historical performance is a great place to start when researching a stock so above you can see the gauge for Leptos Calypso Hotels' ROCE against it's prior returns. If you'd like to look at how Leptos Calypso Hotels has performed in the past in other metrics, you can view this free graph of Leptos Calypso Hotels' past earnings, revenue and cash flow.

What Does the ROCE Trend For Leptos Calypso Hotels Tell Us?

Over the past five years, Leptos Calypso Hotels' ROCE and capital employed have both remained mostly flat. 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Leptos Calypso Hotels to be a multi-bagger going forward.

Our Take On Leptos Calypso Hotels' ROCE

We can conclude that in regards to Leptos Calypso Hotels' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 18% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a separate note, we've found 3 warning signs for Leptos Calypso Hotels you'll probably want to know about.

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.