Returns On Capital At Sun Country Airlines Holdings (NASDAQ:SNCY) Have Hit The Brakes

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Sun Country Airlines Holdings (NASDAQ:SNCY), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.049 = US$56m ÷ (US$1.5b - US$377m) (Based on the trailing twelve months to December 2022).

So, Sun Country Airlines Holdings has an ROCE of 4.9%. Even though it's in line with the industry average of 5.0%, it's still a low return by itself.

Check out our latest analysis for Sun Country Airlines Holdings

In the above chart we have measured Sun Country Airlines Holdings' 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 Sun Country Airlines Holdings.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Sun Country Airlines Holdings in recent years. The company has consistently earned 4.9% for the last four years, and the capital employed within the business has risen 153% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Sun Country Airlines Holdings' ROCE

In conclusion, Sun Country Airlines Holdings has been investing more capital into the business, but returns on that capital haven't increased. And in the last year, the stock has given away 15% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Sun Country Airlines Holdings has the makings of a multi-bagger.

One final note, you should learn about the 2 warning signs we've spotted with Sun Country Airlines Holdings (including 1 which makes us a bit uncomfortable) .

While Sun Country Airlines Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.