Hoteles City Express. de (BMV:HCITY) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Hoteles City Express. de (BMV:HCITY), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Hoteles City Express. de is:

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

0.0052 = Mex$71m ÷ (Mex$14b - Mex$722m) (Based on the trailing twelve months to March 2022).

Thus, Hoteles City Express. de has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 3.0%.

Check out our latest analysis for Hoteles City Express. de

In the above chart we have measured Hoteles City Express. de's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

In terms of Hoteles City Express. de's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 3.8% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Hoteles City Express. de's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Hoteles City Express. de is reinvesting for growth and has higher sales as a result. Despite these promising trends, the stock has collapsed 84% over the last five years, so there could be other factors hurting the company's prospects. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.

If you want to continue researching Hoteles City Express. de, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Hoteles City Express. de isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.