Tongcheng Travel Holdings (HKG:780) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Tongcheng Travel Holdings (HKG:780) and its trend of ROCE, we really liked what we saw.

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 Tongcheng Travel Holdings is:

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

0.015 = CN¥288m ÷ (CN¥27b - CN¥8.0b) (Based on the trailing twelve months to March 2023).

Therefore, Tongcheng Travel Holdings has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 2.7%.

See our latest analysis for Tongcheng Travel Holdings

Above you can see how the current ROCE for Tongcheng Travel Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Tongcheng Travel Holdings' ROCE Trend?

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 1.5%. The amount of capital employed has increased too, by 223%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Tongcheng Travel Holdings' ROCE

All in all, it's terrific to see that Tongcheng Travel Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 14% to shareholders over the last three years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

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

While Tongcheng Travel Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.