Monarch Casino & Resort (NASDAQ:MCRI) Is Very Good At Capital Allocation

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Monarch Casino & Resort (NASDAQ:MCRI) we really liked what we saw.

What Is 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 Monarch Casino & Resort:

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

0.21 = US$117m ÷ (US$664m - US$117m) (Based on the trailing twelve months to September 2023).

So, Monarch Casino & Resort has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.2%.

Check out our latest analysis for Monarch Casino & Resort

In the above chart we have measured Monarch Casino & Resort's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Monarch Casino & Resort.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Monarch Casino & Resort. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 51%. So we're very much inspired by what we're seeing at Monarch Casino & Resort thanks to its ability to profitably reinvest capital.

Our Take On Monarch Casino & Resort's ROCE

In summary, it's great to see that Monarch Casino & Resort can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 70% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Monarch Casino & Resort can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Monarch Casino & Resort that you might find interesting.

Monarch Casino & Resort is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.