Sun International (JSE:SUI) Is Very Good At Capital Allocation

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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, the ROCE of Sun International (JSE:SUI) looks great, so lets see what the trend can tell us.

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

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 International is:

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

0.28 = R2.5b ÷ (R14b - R4.5b) (Based on the trailing twelve months to December 2023).

Thus, Sun International has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 22% earned by companies in a similar industry.

View our latest analysis for Sun International

Above you can see how the current ROCE for Sun International compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Sun International .

What Does the ROCE Trend For Sun International Tell Us?

We're pretty happy with how the ROCE has been trending at Sun International. The figures show that over the last five years, returns on capital have grown by 98%. The company is now earning R0.3 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 49% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Sun International may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Key Takeaway

In the end, Sun International has proven it's capital allocation skills are good with those higher returns from less amount of capital. Considering the stock has delivered 40% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 2 warning signs for Sun International that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.