Meliá Hotels International (BME:MEL) Might Have The Makings Of A Multi-Bagger

Simply Wall St · 04/17 04:08

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Meliá Hotels International (BME:MEL) looks quite promising in regards to its trends of return on capital.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Meliá Hotels International:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.077 = €290m ÷ (€4.6b - €798m) (Based on the trailing twelve months to December 2024).

So, Meliá Hotels International has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 15%.

View our latest analysis for Meliá Hotels International

roce
BME:MEL Return on Capital Employed April 17th 2025

In the above chart we have measured Meliá Hotels International'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 Meliá Hotels International .

So How Is Meliá Hotels International's ROCE Trending?

Meliá Hotels International has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 39% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Meliá Hotels International's ROCE

To bring it all together, Meliá Hotels International has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 58% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Meliá Hotels International does come with some risks, and we've found 2 warning signs that you should be aware of.

While Meliá Hotels International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.