Stock Analysis

The Return Trends At Six Flags Entertainment (NYSE:SIX) Look Promising

NYSE:SIX
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Six Flags Entertainment (NYSE:SIX) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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 Six Flags Entertainment is:

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

0.18 = US$436m ÷ (US$2.9b - US$444m) (Based on the trailing twelve months to April 2022).

So, Six Flags Entertainment has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 10% generated by the Hospitality industry.

See our latest analysis for Six Flags Entertainment

roce
NYSE:SIX Return on Capital Employed July 13th 2022

Above you can see how the current ROCE for Six Flags Entertainment compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Six Flags Entertainment.

What Does the ROCE Trend For Six Flags Entertainment Tell Us?

Six Flags Entertainment's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 22% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

To sum it up, Six Flags Entertainment is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 58% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Six Flags Entertainment does have some risks though, and we've spotted 2 warning signs for Six Flags Entertainment that you might be interested in.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Six Flags Entertainment is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.