Dalata Hotel Group (ISE:DHG) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Dalata Hotel Group (ISE:DHG) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. The formula for this calculation on Dalata Hotel Group is:

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

0.065 = €159m ÷ (€2.5b - €103m) (Based on the trailing twelve months to December 2023).

Therefore, Dalata Hotel Group has an ROCE of 6.5%. On its own, that's a low figure but it's around the 7.7% average generated by the Hospitality industry.

Check out our latest analysis for Dalata Hotel Group

In the above chart we have measured Dalata 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 analyst report for Dalata Hotel Group .

What Does the ROCE Trend For Dalata Hotel Group Tell Us?

There are better returns on capital out there than what we're seeing at Dalata Hotel Group. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 94% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Dalata Hotel Group's ROCE

As we've seen above, Dalata Hotel Group's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 15% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing to note, we've identified 1 warning sign with Dalata Hotel Group and understanding it should be part of your investment process.

While Dalata Hotel Group 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.