If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount 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. With that in mind, we’ve noticed some promising trends at Lucky Strike Entertainment (NYSE:LUCK) so let’s look a bit deeper.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Lucky Strike Entertainment, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.056 = US$162m ÷ (US$3.1b – US$192m) (Based on the trailing twelve months to September 2024).
Therefore, Lucky Strike Entertainment has an ROCE of 5.6%. In absolute terms, that’s a low return and it also under-performs the Hospitality industry average of 9.1%.
View our latest analysis for Lucky Strike Entertainment
In the above chart we have measured Lucky Strike Entertainment’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for Lucky Strike Entertainment .
We’re glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.6%. The amount of capital employed has increased too, by 70%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.
All in all, it’s terrific to see that Lucky Strike Entertainment is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 25% return over the last three years. Therefore, we think it would be worth your time to check if these trends are going to continue.
One final note, you should learn about the 2 warning signs we’ve spotted with Lucky Strike Entertainment (including 1 which shouldn’t be ignored) .
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
‘ The preceding article may include information circulated by third parties ’
‘ Some details of this article were extracted from the following source finance.yahoo.com ’
