Returns On Capital At Grupo Hotelero Santa Fe. de (BMV:HOTEL) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Grupo Hotelero Santa Fe. de (BMV:HOTEL) and its ROCE trend, we weren't exactly thrilled.

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

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. To calculate this metric for Grupo Hotelero Santa Fe. de, this is the formula:

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

0.034 = Mex$356m ÷ (Mex$12b - Mex$1.2b) (Based on the trailing twelve months to September 2022).

Therefore, Grupo Hotelero Santa Fe. de has an ROCE of 3.4%. Even though it's in line with the industry average of 3.4%, it's still a low return by itself.

View our latest analysis for Grupo Hotelero Santa Fe. de

In the above chart we have measured Grupo Hotelero Santa Fe. de'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 report for Grupo Hotelero Santa Fe. de.

How Are Returns Trending?

In terms of Grupo Hotelero Santa Fe. de's historical ROCE trend, it doesn't exactly demand attention. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 3.4%. 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.

The Key Takeaway

In conclusion, Grupo Hotelero Santa Fe. de has been investing more capital into the business, but returns on that capital haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 49% in the last five years. 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 final note, we've found 1 warning sign for Grupo Hotelero Santa Fe. de that we think you should be aware of.

While Grupo Hotelero Santa Fe. de 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.