Here's What's Concerning About Hotel Properties' (SGX:H15) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Hotel Properties (SGX:H15) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. To calculate this metric for Hotel Properties, this is the formula:

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

0.023 = S$94m ÷ (S$4.5b - S$421m) (Based on the trailing twelve months to December 2024).

Thus, Hotel Properties has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 3.3%.

View our latest analysis for Hotel Properties

Above you can see how the current ROCE for Hotel Properties compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Hotel Properties for free.

The Trend Of ROCE

In terms of Hotel Properties' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 2.9%, but since then they've fallen to 2.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Hotel Properties' reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 49% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Hotel Properties does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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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.