Return Trends At Churchill Downs (NASDAQ:CHDN) Aren't Appealing

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Churchill Downs' (NASDAQ:CHDN) trend of ROCE, we liked what we saw.

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. The formula for this calculation on Churchill Downs is:

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

0.11 = US$696m ÷ (US$7.2b - US$710m) (Based on the trailing twelve months to September 2024).

So, Churchill Downs has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.3% generated by the Hospitality industry.

View our latest analysis for Churchill Downs

In the above chart we have measured Churchill Downs' 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 Churchill Downs for free.

What Can We Tell From Churchill Downs' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 183% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Churchill Downs has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Churchill Downs' ROCE

In the end, Churchill Downs has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 67% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing to note, we've identified 1 warning sign with Churchill Downs and understanding this should be part of your investment process.

While Churchill Downs isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.