Returns At OneSpaWorld Holdings (NASDAQ:OSW) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 OneSpaWorld Holdings (NASDAQ:OSW) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for OneSpaWorld Holdings:

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

0.12 = US$76m ÷ (US$734m - US$79m) (Based on the trailing twelve months to September 2024).

So, OneSpaWorld Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Consumer Services industry.

Check out our latest analysis for OneSpaWorld Holdings

Above you can see how the current ROCE for OneSpaWorld Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for OneSpaWorld Holdings .

What Does the ROCE Trend For OneSpaWorld Holdings Tell Us?

You'd find it hard not to be impressed with the ROCE trend at OneSpaWorld Holdings. The data shows that returns on capital have increased by 462% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 26% less than it was five years ago, which can be indicative of a business that's improving its efficiency. OneSpaWorld Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In summary, it's great to see that OneSpaWorld Holdings has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 43% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing OneSpaWorld Holdings, we've discovered 1 warning sign that you should be aware of.

While OneSpaWorld Holdings 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.