Pavillon Holdings (SGX:596) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 on that note, Pavillon Holdings (SGX:596) 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 Pavillon Holdings is:

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

0.0045 = S$274k ÷ (S$66m - S$5.2m) (Based on the trailing twelve months to December 2022).

Therefore, Pavillon Holdings has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 2.6%.

Check out our latest analysis for Pavillon Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Pavillon Holdings, check out these free graphs here.

So How Is Pavillon Holdings' ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 0.5%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at Pavillon Holdings thanks to its ability to profitably reinvest capital.

Our Take On Pavillon Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Pavillon Holdings has. Astute investors may have an opportunity here because the stock has declined 54% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Pavillon Holdings does have some risks, we noticed 4 warning signs (and 3 which are potentially serious) we think you should know about.

While Pavillon Holdings 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.

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