What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Sabre (NASDAQ:SABR), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Sabre is:

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

0.093 = US$332m ÷ (US$4.7b - US$1.1b) (Based on the trailing twelve months to June 2024).

Thus, Sabre has an ROCE of 9.3%. In absolute terms, that's a low return but it's around the Hospitality industry average of 10%.

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Sabre .

What Can We Tell From Sabre's ROCE Trend?

We're a bit concerned with the trends, because the business is applying 23% less capital than it was five years ago and returns on that capital have stayed flat. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 9.3%, it's hard to get excited about these developments.

The Bottom Line

It's a shame to see that Sabre is effectively shrinking in terms of its capital base. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 87% in the last five years. Therefore based on the analysis done in this article, we don't think Sabre has the makings of a multi-bagger.

Sabre does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.

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.