Returns Are Gaining Momentum At Full House Resorts (NASDAQ:FLL)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Full House Resorts (NASDAQ:FLL) so let's look a bit deeper.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Full House Resorts, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.065 = US$35m ÷ (US$565m - US$33m) (Based on the trailing twelve months to March 2022).
Therefore, Full House Resorts has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.7%.
Check out our latest analysis for Full House Resorts
In the above chart we have measured Full House Resorts' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Full House Resorts.
The Trend Of ROCE
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.5%. The amount of capital employed has increased too, by 236%. So we're very much inspired by what we're seeing at Full House Resorts thanks to its ability to profitably reinvest capital.
The Bottom Line
To sum it up, Full House Resorts has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Full House Resorts can keep these trends up, it could have a bright future ahead.
If you'd like to know more about Full House Resorts, we've spotted 2 warning signs, and 1 of them doesn't sit too well with us.
If you want to search for solid companies with great earnings, check out this free list 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.
