Melco International Development (HKG:200) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Melco International Development (HKG:200) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Melco International Development:

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

0.055 = HK$3.6b ÷ (HK$85b - HK$19b) (Based on the trailing twelve months to December 2024).

So, Melco International Development has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.0%.

Check out our latest analysis for Melco International Development

Above you can see how the current ROCE for Melco International Development compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Melco International Development .

How Are Returns Trending?

Over the past five years, Melco International Development's ROCE has remained relatively flat while the business is using 25% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. In addition to that, since the ROCE doesn't scream "quality" at 5.5%, it's hard to get excited about these developments.

What We Can Learn From Melco International Development's ROCE

In summary, Melco International Development isn't reinvesting funds back into the business and returns aren't growing. Moreover, since the stock has crumbled 74% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think Melco International Development has the makings of a multi-bagger.

If you're still interested in Melco International Development it's worth checking out our FREE intrinsic value approximation for 200 to see if it's trading at an attractive price in other respects.

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.