NH Hotel Group (BME:NHH) Might Have The Makings Of A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at NH Hotel Group (BME:NHH) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for NH Hotel Group, this is the formula:

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

0.076 = €254m ÷ (€4.1b - €778m) (Based on the trailing twelve months to December 2022).

So, NH Hotel Group has an ROCE of 7.6%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 5.9%.

Check out our latest analysis for NH Hotel Group

In the above chart we have measured NH Hotel Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for NH Hotel Group.

So How Is NH Hotel Group's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 7.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 77%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On NH Hotel Group's ROCE

All in all, it's terrific to see that NH Hotel Group is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 32% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching NH Hotel Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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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.