Stock Analysis

Returns Are Gaining Momentum At Hilton Worldwide Holdings (NYSE:HLT)

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NYSE:HLT
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Hilton Worldwide Holdings (NYSE:HLT) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Hilton Worldwide Holdings:

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

0.10 = US$1.3b ÷ (US$15b - US$3.1b) (Based on the trailing twelve months to March 2022).

Therefore, Hilton Worldwide Holdings has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 9.9%.

View our latest analysis for Hilton Worldwide Holdings

roce
NYSE:HLT Return on Capital Employed May 25th 2022

In the above chart we have measured Hilton Worldwide Holdings' 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.

The Trend Of ROCE

Hilton Worldwide Holdings' ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 31% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Hilton Worldwide Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a solid 100% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Hilton Worldwide Holdings does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

What are the risks and opportunities for Hilton Worldwide Holdings?

Hilton Worldwide Holdings Inc., a hospitality company, owns, leases, manages, develops, and franchises hotels and resorts.

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Rewards

  • Trading at 11.2% below our estimate of its fair value

  • Earnings are forecast to grow 14.55% per year

  • Earnings grew by 2653.8% over the past year

Risks

  • Debt is not well covered by operating cash flow

  • Negative shareholders equity

  • Significant insider selling over the past 3 months

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Hilton Worldwide Holdings

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