Caesars Entertainment’s (NASDAQ:CZR) Returns Have Hit A Wall

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 briefly looking over the numbers, we don’t think Caesars Entertainment (NASDAQ:CZR) has the makings of a multi-bagger going forward, but let’s have a look at why that may be.

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

For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Caesars Entertainment, this is the formula:

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

0.079 = US$2.4b ÷ (US$33b – US$2.6b) (Based on the trailing twelve months to June 2024).

Therefore, Caesars Entertainment has an ROCE of 7.9%. In absolute terms, that’s a low return and it also under-performs the Hospitality industry average of 11%.

Check out our latest analysis for Caesars Entertainment

Above you can see how the current ROCE for Caesars Entertainment 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 Caesars Entertainment .

What Can We Tell From Caesars Entertainment’s ROCE Trend?

The returns on capital haven’t changed much for Caesars Entertainment in recent years. Over the past five years, ROCE has remained relatively flat at around 7.9% and the business has deployed 435% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don’t provide a high return on capital.

What We Can Learn From Caesars Entertainment’s ROCE

Long story short, while Caesars Entertainment has been reinvesting its capital, the returns that it’s generating haven’t increased. And investors appear hesitant that the trends will pick up because the stock has fallen 15% in the last five years. All in all, the inherent trends aren’t typical of multi-baggers, so if that’s what you’re after, we think you might have more luck elsewhere.

While Caesars Entertainment doesn’t shine too bright in this respect, it’s still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for CZR on our platform.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com