Life Time Group Holdings (NYSE:LTH) Is Experiencing Growth In Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Life Time Group Holdings (NYSE:LTH) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Life Time Group Holdings is:

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

0.049 = US$331m ÷ (US$7.2b - US$457m) (Based on the trailing twelve months to September 2024).

Thus, Life Time Group Holdings has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.4%.

View our latest analysis for Life Time Group Holdings

Above you can see how the current ROCE for Life Time Group 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 Life Time Group Holdings .

What Does the ROCE Trend For Life Time Group Holdings Tell Us?

We're delighted to see that Life Time Group Holdings is reaping rewards from its investments and has now broken into profitability. The company now earns 4.9% on its capital, because four years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

What We Can Learn From Life Time Group Holdings' ROCE

In summary, we're delighted to see that Life Time Group Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 97% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Life Time Group Holdings that you might find interesting.

While Life Time Group 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.