If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at Banyan Tree Holdings (SGX:B58) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Banyan Tree Holdings:

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

0.014 = S$18m ÷ (S$1.7b - S$375m) (Based on the trailing twelve months to December 2023).

Thus, Banyan Tree Holdings has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 4.6%.

See our latest analysis for Banyan Tree Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Banyan Tree Holdings' past further, check out this free graph covering Banyan Tree Holdings' past earnings, revenue and cash flow.

So How Is Banyan Tree Holdings' ROCE Trending?

Things have been pretty stable at Banyan Tree Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Banyan Tree Holdings doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, Banyan Tree Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 16% in the last five years. Therefore based on the analysis done in this article, we don't think Banyan Tree Holdings has the makings of a multi-bagger.

Banyan Tree Holdings does have some risks though, and we've spotted 2 warning signs for Banyan Tree Holdings that you might be interested in.