Yahoo Finance Returns Are Gaining Momentum At trivago (NASDAQ:TRVG)
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, trivago (NASDAQ:TRVG) looks quite promising in regards to its trends of return on capital.
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. The formula for this calculation on trivago is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = €40m ÷ (€325m - €36m) (Based on the trailing twelve months to December 2023).
Therefore, trivago has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Interactive Media and Services industry.
Check out our latest analysis for trivago
In the above chart we have measured trivago's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering trivago for free.
What Can We Tell From trivago's ROCE Trend?
It's great to see that trivago has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 72%. trivago could be selling under-performing assets since the ROCE is improving.
Our Take On trivago's ROCE
In a nutshell, we're pleased to see that trivago has been able to generate higher returns from less capital. However the stock is down a substantial 76% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for TRVG on our platform that is definitely worth checking out.
While trivago 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.
