If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Grand Harbor Marina plc (MTSE: GHM), we don’t think it’s current Trends fit the mold of a multi-bagger.
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. To calculate this metric for Grand Harbor Marina plc, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.063 = € 1.5m (€ 28m – € 3.2m) (Based on the trailing twelve months to June 2021).
Therefore, Grand Harbor Marina plc has an ROCE of 6.3%. In Absolute terms, that’s a low return, but it’s much better than the Hospitality industry average of 4.1%.
Check out our latest analysis for Grand Harbor Marina plc
While the past is not representative of the future, it can be helpful to know how the company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Grand Harbor Marina plc, check out these free graphs here.
What Can We Tell From Grand Harbor Marina plc’s ROCE Trend?
On the surface, the trend of ROCE at Grand Harbor Marina plc doesn’t inspire confidence. To be more specific, ROCE has fallen from 8.4% over the last five years. However, it looks like Grand Harbor Marina plc might be reinvesting for long term growth because while capital employed has increased, the company’s sales haven’t changed much in the last 12 months. It’s worth keeping an eye on the company’s earnings from here to see if these investments do end up contributing to the bottom line.
The Bottom Line On Grand Harbor Marina plc’s ROCE
To conclude, we’ve found that Grand Harbor Marina plc is reinvesting in the business, but returns have been falling. Since the stock has declined 18% over the last five years, investors may not be too optimistic about this trend improving either. Therefore, based on the analysis done in this article, we don’t think Grand Harbor Marina plc has the makings of a multi-bagger.
If you’d like to know more about Grand Harbor Marina plc, we’ve spotted 5 warning signs, and 2 of them are a bit unpleasant.
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.