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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So on that note, Travel + Leisure (NYSE:TNL) looks quite promising in regards to its trends of return on capital.
Understanding 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. The formula for this calculation on Travel + Leisure is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$758m ÷ (US$6.8b - US$1.1b) (Based on the trailing twelve months to March 2025).
Therefore, Travel + Leisure has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Hospitality industry.
See our latest analysis for Travel + Leisure
Above you can see how the current ROCE for Travel + Leisure compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Travel + Leisure .
So How Is Travel + Leisure's ROCE Trending?
Travel + Leisure has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 61% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To sum it up, Travel + Leisure is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Travel + Leisure does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.