Investors Met With Slowing Returns on Capital At Canterbury Park Holding (NASDAQ:CPHC)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. In light of that, when we looked at Canterbury Park Holding (NASDAQ:CPHC) and its ROCE trend, we weren't exactly thrilled.

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 Canterbury Park Holding:

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

0.096 = US$8.5m ÷ (US$102m - US$13m) (Based on the trailing twelve months to June 2023).

Thus, Canterbury Park Holding has an ROCE of 9.6%. Even though it's in line with the industry average of 9.6%, it's still a low return by itself.

See our latest analysis for Canterbury Park Holding

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Canterbury Park Holding, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Canterbury Park Holding in recent years. The company has consistently earned 9.6% for the last five years, and the capital employed within the business has risen 94% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a side note, Canterbury Park Holding has done well to reduce current liabilities to 13% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Canterbury Park Holding's ROCE

Long story short, while Canterbury Park Holding has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 31% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Canterbury Park Holding, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Canterbury Park Holding 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.