Returns On Capital Are Showing Encouraging Signs At Sun Country Airlines Holdings (NASDAQ:SNCY)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Sun Country Airlines Holdings' (NASDAQ:SNCY) returns on capital, so let's have a look.

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 Sun Country Airlines Holdings is:

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

0.11 = US$128m ÷ (US$1.6b - US$419m) (Based on the trailing twelve months to December 2023).

So, Sun Country Airlines Holdings has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Airlines industry.

See our latest analysis for Sun Country Airlines Holdings

Above you can see how the current ROCE for Sun Country Airlines Holdings 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 analyst report for Sun Country Airlines Holdings .

The Trend Of ROCE

Investors would be pleased with what's happening at Sun Country Airlines Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 166%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that Sun Country Airlines Holdings is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 56% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Sun Country Airlines Holdings does have some risks though, and we've spotted 2 warning signs for Sun Country Airlines Holdings 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.

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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.