Yahoo Finance Sabre's (NASDAQ:SABR) Returns On Capital Tell Us There Is Reason To Feel Uneasy
What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at Sabre (NASDAQ:SABR), so let's see why.
What Is 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 Sabre:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.016 = US$60m ÷ (US$4.7b - US$915m) (Based on the trailing twelve months to December 2023).
Thus, Sabre has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.6%.
Check out our latest analysis for Sabre
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, you can check out the forecasts from the analysts covering Sabre for free.
So How Is Sabre's ROCE Trending?
We are a bit anxious about the trends of ROCE at Sabre. Unfortunately, returns have declined substantially over the last five years to the 1.6% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 22% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.
Our Take On Sabre's ROCE
To see Sabre reducing the capital employed in the business in tandem with diminishing returns, is concerning. We expect this has contributed to the stock plummeting 87% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
If you'd like to know more about Sabre, we've spotted 3 warning signs, and 1 of them is a bit concerning.
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.
