The Returns At Carnival Corporation & (NYSE:CCL) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Carnival Corporation & (NYSE:CCL), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 Carnival Corporation &:

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

0.078 = US$2.8b ÷ (US$50b - US$13b) (Based on the trailing twelve months to May 2024).

Thus, Carnival Corporation & has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 11%.

View our latest analysis for Carnival Corporation &

In the above chart we have measured Carnival Corporation &'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Carnival Corporation & for free.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for Carnival Corporation &'s returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Carnival Corporation & to be a multi-bagger going forward.

The Bottom Line

In summary, Carnival Corporation & isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 58% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Carnival Corporation & has the makings of a multi-bagger.

One more thing to note, we've identified 1 warning sign with Carnival Corporation & and understanding it should be part of your investment process.

While Carnival Corporation & 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.

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