Marriott Vacations Worldwide's (NYSE:VAC) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Marriott Vacations Worldwide (NYSE:VAC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Marriott Vacations Worldwide:

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

0.061 = US$519m ÷ (US$9.8b - US$1.2b) (Based on the trailing twelve months to December 2024).

Therefore, Marriott Vacations Worldwide has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.6%.

Check out our latest analysis for Marriott Vacations Worldwide

In the above chart we have measured Marriott Vacations Worldwide's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Marriott Vacations Worldwide .

So How Is Marriott Vacations Worldwide's ROCE Trending?

Over the past five years, Marriott Vacations Worldwide's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Marriott Vacations Worldwide to be a multi-bagger going forward. This probably explains why Marriott Vacations Worldwide is paying out 37% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line

In summary, Marriott Vacations Worldwide isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 50% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Marriott Vacations Worldwide, we've spotted 2 warning signs, and 1 of them is concerning.

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.

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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.