What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Sabre (NASDAQ:SABR), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Sabre:

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

0.11 = US$376m ÷ (US$4.7b - US$1.2b) (Based on the trailing twelve months to September 2024).

Therefore, Sabre has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 8.5% it's much better.

Above you can see how the current ROCE for Sabre compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Sabre .

How Are Returns Trending?

Over the past five years, Sabre's ROCE has remained relatively flat while the business is using 24% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.

In Conclusion...

Overall, we're not ecstatic to see Sabre reducing the amount of capital it employs in the business. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 83% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Sabre does have some risks though, and we've spotted 1 warning sign for Sabre that you might be interested in.

While Sabre 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.

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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.