If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Although, when we looked at Caesars Entertainment (NASDAQ:CZR), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Caesars Entertainment:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = US$2.4b ÷ (US$33b - US$2.3b) (Based on the trailing twelve months to September 2024).
Thus, Caesars Entertainment has an ROCE of 7.7%. On its own, that's a low figure but it's around the 8.6% average generated by the Hospitality industry.
Check out our latest analysis for Caesars Entertainment
Above you can see how the current ROCE for Caesars Entertainment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Caesars Entertainment .
What The Trend Of ROCE Can Tell Us
In terms of Caesars Entertainment's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 7.7% for the last five years, and the capital employed within the business has risen 442% 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.
The Bottom Line On Caesars Entertainment's ROCE
In conclusion, Caesars Entertainment has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 34% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
While Caesars Entertainment doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for CZR on our platform.
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.
About NasdaqGS:CZR
Very undervalued with moderate growth potential.