Téléverbier's (EPA:TVRB) Returns On Capital Not Reflecting Well On The Business

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at Téléverbier (EPA:TVRB) and its ROCE trend, we weren't exactly thrilled.

What Is 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. The formula for this calculation on Téléverbier is:

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

0.022 = CHF4.5m ÷ (CHF225m - CHF22m) (Based on the trailing twelve months to April 2024).

Thus, Téléverbier has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.3%.

Check out our latest analysis for Téléverbier

Historical performance is a great place to start when researching a stock so above you can see the gauge for Téléverbier's ROCE against it's prior returns. If you're interested in investigating Téléverbier's past further, check out this free graph covering Téléverbier's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Téléverbier's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 3.0%, but since then they've fallen to 2.2%. However it looks like Téléverbier might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

In summary, Téléverbier is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 30% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Like most companies, Téléverbier does come with some risks, and we've found 3 warning signs that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.