We Like These Underlying Return On Capital Trends At Lucky Strike Entertainment (NYSE:LUCK)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at Lucky Strike Entertainment (NYSE:LUCK) so let's look a bit deeper.

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 Lucky Strike Entertainment is:

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

0.056 = US$162m ÷ (US$3.1b - US$192m) (Based on the trailing twelve months to September 2024).

Therefore, Lucky Strike Entertainment has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.1%.

Check out our latest analysis for Lucky Strike Entertainment

In the above chart we have measured Lucky Strike Entertainment'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 analyst report for Lucky Strike Entertainment .

What Can We Tell From Lucky Strike Entertainment's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.6%. The amount of capital employed has increased too, by 70%. So we're very much inspired by what we're seeing at Lucky Strike Entertainment thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Lucky Strike Entertainment has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 24% return over the last three years. In light of that, we think it's worth looking further into this stock because if Lucky Strike Entertainment can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Lucky Strike Entertainment we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Lucky Strike Entertainment 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.