To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Atour Lifestyle Holdings' (NASDAQ:ATAT) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Atour Lifestyle Holdings:

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

0.27 = CN￥1.3b ÷ (CN￥7.3b - CN￥2.5b) (Based on the trailing twelve months to June 2024).

So, Atour Lifestyle Holdings has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

See our latest analysis for Atour Lifestyle Holdings

In the above chart we have measured Atour Lifestyle Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Atour Lifestyle Holdings for free.

What Can We Tell From Atour Lifestyle Holdings' ROCE Trend?

We like the trends that we're seeing from Atour Lifestyle Holdings. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 27%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 361%. So we're very much inspired by what we're seeing at Atour Lifestyle Holdings thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that Atour Lifestyle Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 53% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.