Yahoo Finance Wynn Resorts (NASDAQ:WYNN) Could Be Struggling To Allocate Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Wynn Resorts (NASDAQ:WYNN), we don't think it's current trends fit the mold of a multi-bagger.
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 Wynn Resorts is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.004 = US$49m ÷ (US$14b - US$1.4b) (Based on the trailing twelve months to March 2023).
Thus, Wynn Resorts has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.8%.
View our latest analysis for Wynn Resorts
In the above chart we have measured Wynn Resorts' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Wynn Resorts here for free.
So How Is Wynn Resorts' ROCE Trending?
In terms of Wynn Resorts' historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 12%, but since then they've fallen to 0.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
To conclude, we've found that Wynn Resorts is reinvesting in the business, but returns have been falling. Since the stock has declined 40% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you'd like to know more about Wynn Resorts, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.
While Wynn Resorts may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
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