To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at H World Group (NASDAQ:HTHT) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for H World Group:

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

0.11 = CN¥5.2b ÷ (CN¥63b - CN¥13b) (Based on the trailing twelve months to December 2024).

Therefore, H World Group has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Hospitality industry average of 9.8%.

View our latest analysis for H World Group NasdaqGS:HTHT Return on Capital Employed April 11th 2025

Above you can see how the current ROCE for H World Group 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 analyst report for H World Group  .

The Trend Of ROCE

H World Group is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, H World Group has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

To sum it up, H World Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 20% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Story Continues

On a final note, we've found  2 warning signs for H World Group that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this freelist 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.

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