Returns Are Gaining Momentum At Marriott Vacations Worldwide (NYSE:VAC)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Marriott Vacations Worldwide (NYSE:VAC) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Marriott Vacations Worldwide is:

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

0.075 = US$646m ÷ (US$9.5b - US$840m) (Based on the trailing twelve months to September 2023).

So, Marriott Vacations Worldwide has an ROCE of 7.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.6%.

See 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 report for Marriott Vacations Worldwide.

What The Trend Of ROCE Can Tell Us

Marriott Vacations Worldwide's 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 137% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Marriott Vacations Worldwide's ROCE

To sum it up, Marriott Vacations Worldwide is collecting higher returns from the same amount of capital, and that's impressive. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

Marriott Vacations Worldwide does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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

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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.