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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Revel Collective (LON:TRC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is Return On Capital Employed (ROCE)?
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 Revel Collective:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = UK£2.8m ÷ (UK£91m - UK£39m) (Based on the trailing twelve months to June 2024).
Therefore, Revel Collective has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.3%.
View our latest analysis for Revel Collective
In the above chart we have measured Revel Collective's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Revel Collective .
What Does the ROCE Trend For Revel Collective Tell Us?
Things have been pretty stable at Revel Collective, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Revel Collective to be a multi-bagger going forward.
Another thing to note, Revel Collective has a high ratio of current liabilities to total assets of 42%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Key Takeaway
We can conclude that in regards to Revel Collective's returns on capital employed and the trends, there isn't much change to report on. Moreover, since the stock has crumbled 100% over the last five years, it appears investors are expecting the worst. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.