Yahoo Finance Vail Resorts (NYSE:MTN) Has More To Do To Multiply In Value Going Forward
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Vail Resorts' (NYSE:MTN) trend of ROCE, we liked what we saw.
Understanding Return On Capital Employed (ROCE)
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 Vail Resorts, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$558m ÷ (US$6.4b - US$830m) (Based on the trailing twelve months to April 2022).
Therefore, Vail Resorts has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.
See our latest analysis for Vail Resorts
Above you can see how the current ROCE for Vail Resorts compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Vail Resorts.
What Can We Tell From Vail Resorts' ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 58% in that time. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On Vail Resorts' ROCE
To sum it up, Vail Resorts has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 22% over the last five years for shareholders who have owned the stock in this period. So to determine if Vail Resorts is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
One more thing to note, we've identified 2 warning signs with Vail Resorts and understanding these should be part of your investment process.
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.
