Return Trends At Leptos Calypso Hotels (CSE:LCH) Aren't Appealing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Leptos Calypso Hotels (CSE:LCH), it didn't seem to tick all of these boxes.

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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. The formula for this calculation on Leptos Calypso Hotels is:

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).

So, Leptos Calypso Hotels has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.0%.

View our latest analysis for Leptos Calypso 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 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?

There hasn't been much to report for Leptos Calypso Hotels' 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. 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.

The Bottom Line

In summary, Leptos Calypso Hotels isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 1.8% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Leptos Calypso Hotels does have some risks though, and we've spotted 3 warning signs for Leptos Calypso Hotels that you might be interested in.

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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.