If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Full House Resorts (NASDAQ:FLL), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Full House Resorts is:

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

0.012 = US$7.0m ÷ (US$674m - US$70m) (Based on the trailing twelve months to June 2024).

Therefore, Full House Resorts has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 10%.

View our latest analysis for Full House Resorts

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're interested, you can view the analysts predictions in our free analyst report for Full House Resorts .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Full House Resorts, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.2% from 4.4% five years ago. 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

In summary, despite lower returns in the short term, we're encouraged to see that Full House Resorts is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 69% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you want to continue researching Full House Resorts, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Full House Resorts isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.