Here's What To Make Of Gambling.com Group's (NASDAQ:GAMB) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. That's why when we briefly looked at Gambling.com Group's (NASDAQ:GAMB) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Gambling.com Group:

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

0.16 = US$18m ÷ (US$147m - US$36m) (Based on the trailing twelve months to March 2023).

Therefore, Gambling.com Group has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 9.4% it's much better.

Check out our latest analysis for Gambling.com Group

Above you can see how the current ROCE for Gambling.com Group 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 Gambling.com Group.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 16% for the last four years, and the capital employed within the business has risen 232% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Gambling.com Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

To sum it up, Gambling.com Group has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 0.7% over the last year, we'd suspect the market is beginning to recognize these trends. So to determine if Gambling.com Group is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Like most companies, Gambling.com Group does come with some risks, and we've found 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.