Returns On Capital At Wynn Macau (HKG:1128) Have Stalled

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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 Wynn Macau (HKG:1128), it didn't seem to tick all of these boxes.

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 Wynn Macau:

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

0.19 = HK$5.5b ÷ (HK$43b - HK$15b) (Based on the trailing twelve months to June 2024).

So, Wynn Macau has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 6.6% generated by the Hospitality industry.

Check out our latest analysis for Wynn Macau

In the above chart we have measured Wynn Macau's 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 Wynn Macau for free.

What Does the ROCE Trend For Wynn Macau Tell Us?

There hasn't been much to report for Wynn Macau's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Wynn Macau to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Wynn Macau has been paying out a decent 51% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Wynn Macau's ROCE

In a nutshell, Wynn Macau has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 66% in the last five years. Therefore based on the analysis done in this article, we don't think Wynn Macau has the makings of a multi-bagger.

On a separate note, we've found 2 warning signs for Wynn Macau you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.