Returns At MakeMyTrip (NASDAQ:MMYT) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. With that in mind, we've noticed some promising trends at MakeMyTrip (NASDAQ:MMYT) so let's look a bit deeper.

What Is 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. To calculate this metric for MakeMyTrip, this is the formula:

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

0.066 = US$96m ÷ (US$1.8b - US$364m) (Based on the trailing twelve months to December 2024).

So, MakeMyTrip has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.3%.

See our latest analysis for MakeMyTrip

In the above chart we have measured MakeMyTrip'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 analyst report for MakeMyTrip .

So How Is MakeMyTrip's ROCE Trending?

MakeMyTrip has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 6.6% on its capital. While returns have increased, the amount of capital employed by MakeMyTrip has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line On MakeMyTrip's ROCE

To bring it all together, MakeMyTrip has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 325% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if MakeMyTrip can keep these trends up, it could have a bright future ahead.

If you want to continue researching MakeMyTrip, you might be interested to know about the 1 warning sign that our analysis has discovered.

While MakeMyTrip 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.

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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.