Returns Are Gaining Momentum At HolidayCheck Group (HMSE:HOC)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at HolidayCheck Group (HMSE:HOC) so let's look a bit deeper.

What Is 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 HolidayCheck Group:

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

0.038 = €5.4m ÷ (€156m - €16m) (Based on the trailing twelve months to December 2021).

Thus, HolidayCheck Group has an ROCE of 3.8%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 2.1%.

View our latest analysis for HolidayCheck Group

In the above chart we have measured HolidayCheck Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for HolidayCheck Group

The Trend Of ROCE

Shareholders will be relieved that HolidayCheck Group has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.8%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On HolidayCheck Group's ROCE

To sum it up, HolidayCheck Group is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 29% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if HolidayCheck Group can keep these trends up, it could have a bright future ahead.

HolidayCheck Group does have some risks though, and we've spotted 2 warning signs for HolidayCheck Group that you might be interested in.

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.