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Full House Resorts (NASDAQ:FLL) May Have Issues Allocating Its Capital

Simply Wall St · 04/04 10:56

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. In light of that, when we looked at Full House Resorts (NASDAQ:FLL) and its ROCE trend, we weren't exactly thrilled.

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Understanding 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. Analysts use this formula to calculate it for Full House Resorts:

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

0.0014 = US$842k ÷ (US$673m - US$67m) (Based on the trailing twelve months to December 2024).

Therefore, Full House Resorts has an ROCE of 0.1%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.8%.

View our latest analysis for Full House Resorts

roce
NasdaqCM:FLL Return on Capital Employed April 4th 2025

Above you can see how the current ROCE for Full House Resorts compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Full House Resorts for free.

What Does the ROCE Trend For Full House Resorts Tell Us?

When we looked at the ROCE trend at Full House Resorts, we didn't gain much confidence. Around five years ago the returns on capital were 3.3%, but since then they've fallen to 0.1%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Full House Resorts' ROCE

While returns have fallen for Full House Resorts in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 211% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know about the risks facing Full House Resorts, we've discovered 1 warning sign that you should be aware of.

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.