EIH (NSE:EIHOTEL) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. So when we looked at EIH (NSE:EIHOTEL) and its trend of ROCE, we really liked what we saw.

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Understanding 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 EIH is:

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

0.19 = ₹10b ÷ (₹58b - ₹5.6b) (Based on the trailing twelve months to March 2025).

Therefore, EIH has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.1% generated by the Hospitality industry.

See our latest analysis for EIH

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'd like to look at how EIH has performed in the past in other metrics, you can view this free graph of EIH's past earnings, revenue and cash flow.

How Are Returns Trending?

We like the trends that we're seeing from EIH. Over the last five years, returns on capital employed have risen substantially to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 37% more capital is being employed now too. So we're very much inspired by what we're seeing at EIH thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that EIH is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 450% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

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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.