Yahoo Finance Many Would Be Envious Of Wingstop's (NASDAQ:WING) Excellent Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Wingstop (NASDAQ:WING) looks attractive right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
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 Wingstop, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.38 = US$118m ÷ (US$378m - US$71m) (Based on the trailing twelve months to December 2023).
Thus, Wingstop has an ROCE of 38%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.
See our latest analysis for Wingstop
Above you can see how the current ROCE for Wingstop 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 Wingstop .
What Does the ROCE Trend For Wingstop Tell Us?
Wingstop deserves to be commended in regards to it's returns. The company has consistently earned 38% for the last five years, and the capital employed within the business has risen 171% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.
The Bottom Line On Wingstop's ROCE
In summary, we're delighted to see that Wingstop has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 409% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
Wingstop does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...
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.
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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.
