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

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Wynn Macau (HKG:1128), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Wynn Macau is:

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

0.19 = HK$5.5b ÷ (HK$39b - HK$10b) (Based on the trailing twelve months to December 2024).

Thus, Wynn Macau has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Hospitality industry.

Check out our latest analysis for Wynn Macau

Above you can see how the current ROCE for Wynn Macau 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 Wynn Macau for free.

The Trend Of ROCE

Over the past five years, Wynn Macau's ROCE has remained relatively flat while the business is using 26% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.

Our Take On Wynn Macau's ROCE

In summary, Wynn Macau isn't reinvesting funds back into the business and returns aren't growing. Since the stock has declined 58% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Wynn Macau does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are concerning...

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.