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There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in SeaWorld Entertainment’s (NYSE:SEAS) returns on capital, so let’s have a look.
What Is Return On Capital Employed (ROCE)?
For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for SeaWorld Entertainment, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.27 = US$525m ÷ (US$2.3b – US$409m) (Based on the trailing twelve months to December 2022).
Thus, SeaWorld Entertainment has an ROCE of 27%. That’s a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.
View our latest analysis for SeaWorld Entertainment
Above you can see how the current ROCE for SeaWorld 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 report on analyst forecasts for the company.
The Trend Of ROCE
SeaWorld Entertainment has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 520% in that same time. So it’s likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn’t changed considerably. On that front, things are looking good so it’s worth exploring what management has said about growth plans going forward.
What We Can Learn From SeaWorld Entertainment’s ROCE
To sum it up, SeaWorld Entertainment is collecting higher returns from the same amount of capital, and that’s impressive. Since the stock has returned a staggering 270% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
SeaWorld Entertainment does have some risks though, and we’ve spotted 2 warning signs for SeaWorld Entertainment that you might be interested in.
If you’d like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
What are the risks and opportunities for SeaWorld Entertainment?
Trading at 46.7% below our estimate of its fair value
Earnings are forecast to grow 10.04% per year
Earnings grew by 13.5% over the past year
Significant insider selling over the past 3 months
Has a high level of debt
View all Risks and Rewards
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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.