Returns At RLH Properties. de (BMV:RLHA) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at RLH Properties. de (BMV:RLHA) so let's look a bit deeper.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for RLH Properties. de:

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

0.026 = Mex$793m ÷ (Mex$37b - Mex$6.5b) (Based on the trailing twelve months to December 2024).

So, RLH Properties. de has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.0%.

See our latest analysis for RLH Properties. de

Historical performance is a great place to start when researching a stock so above you can see the gauge for RLH Properties. de's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of RLH Properties. de.

The Trend Of ROCE

The fact that RLH Properties. de is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 2.6% on its capital. Not only that, but the company is utilizing 35% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

In summary, it's great to see that RLH Properties. de has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 4.1% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to continue researching RLH Properties. de, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.