What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Vail Resorts' (NYSE:MTN) trend of ROCE, we liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Vail Resorts:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$576m ÷ (US$6.6b - US$1.3b) (Based on the trailing twelve months to January 2023).
Thus, Vail Resorts has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Hospitality industry average of 9.8%.
View our latest analysis for Vail Resorts
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 Can We Tell From Vail Resorts' ROCE Trend?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 11%. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On Vail Resorts' ROCE
The main thing to remember is that Vail Resorts has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 15% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Vail Resorts is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
On a separate note, we've found 2 warning signs for Vail Resorts you'll probably want to know about.
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.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
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.
About NYSE:MTN
Vail Resorts
Through its subsidiaries, operates mountain resorts and regional ski areas in the United States.
Average dividend payer and fair value.
