Returns At Hyatt Hotels (NYSE:H) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Hyatt Hotels (NYSE:H), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. The formula for this calculation on Hyatt Hotels is:

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

0.041 = US$408m ÷ (US$13b - US$2.6b) (Based on the trailing twelve months to June 2023).

Thus, Hyatt Hotels has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.7%.

See our latest analysis for Hyatt Hotels

In the above chart we have measured Hyatt Hotels' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Hyatt Hotels. The company has employed 56% more capital in the last five years, and the returns on that capital have remained stable at 4.1%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

In summary, Hyatt Hotels has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 49% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

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

While Hyatt Hotels 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.