Some Investors May Be Worried About Vail Resorts' (NYSE:MTN) Returns On Capital

By
Simply Wall St
Published
March 15, 2022
NYSE:MTN
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. 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 briefly looking over the numbers, we don't think Vail Resorts (NYSE:MTN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is 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. To calculate this metric for Vail Resorts, this is the formula:

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

0.056 = US$284m ÷ (US$6.3b - US$1.3b) (Based on the trailing twelve months to October 2021).

So, Vail Resorts has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.0%.

View our latest analysis for Vail Resorts

roce
NYSE:MTN Return on Capital Employed March 15th 2022

Above you can see how the current ROCE for Vail Resorts 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 report for Vail Resorts.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Vail Resorts, we didn't gain much confidence. Around five years ago the returns on capital were 8.6%, but since then they've fallen to 5.6%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Vail Resorts' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 41% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One final note, you should learn about the 4 warning signs we've spotted with Vail Resorts (including 1 which can't be ignored) .

While Vail Resorts isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.