Dalata Hotel Group's (ISE:DHG) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Dalata Hotel Group (ISE:DHG) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Dalata Hotel Group:

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

0.067 = €158m ÷ (€2.5b - €116m) (Based on the trailing twelve months to June 2023).

Thus, Dalata Hotel Group has an ROCE of 6.7%. On its own, that's a low figure but it's around the 6.5% average generated by the Hospitality industry.

See our latest analysis for Dalata Hotel Group

Above you can see how the current ROCE for Dalata Hotel Group 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 Dalata Hotel Group's ROCE Trend?

In terms of Dalata Hotel Group's historical ROCE trend, it doesn't exactly demand attention. The company has employed 105% more capital in the last five years, and the returns on that capital have remained stable at 6.7%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Dalata Hotel Group's ROCE

Long story short, while Dalata Hotel Group has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 22% 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.

On a separate note, we've found 1 warning sign for Dalata Hotel Group you'll probably want to know about.

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.