The Returns On Capital At Lampsa Hellenic Hotels (ATH:LAMPS) Don't Inspire Confidence

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. However, after investigating Lampsa Hellenic Hotels (ATH:LAMPS), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. To calculate this metric for Lampsa Hellenic Hotels, this is the formula:

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

0.076 = €18m ÷ (€283m - €40m) (Based on the trailing twelve months to June 2022).

Therefore, Lampsa Hellenic Hotels has an ROCE of 7.6%. On its own that's a low return, but compared to the average of 6.3% generated by the Hospitality industry, it's much better.

Check out our latest analysis for Lampsa Hellenic 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 want to delve into the historical earnings, revenue and cash flow of Lampsa Hellenic Hotels, check out these free graphs here.

How Are Returns Trending?

On the surface, the trend of ROCE at Lampsa Hellenic Hotels doesn't inspire confidence. To be more specific, ROCE has fallen from 9.8% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Lampsa Hellenic Hotels' ROCE

While returns have fallen for Lampsa Hellenic Hotels in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 38% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Lampsa Hellenic Hotels does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

While Lampsa Hellenic Hotels isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.