PlayAGS (NYSE:AGS) Sees Growth in Capital Returns


If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a based capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. With this in mind, we have noticed some promising trends in PlayAGS (NYSE:AGS) so let’s look a little deeper.

What is return on capital employed (ROCE)?

For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. To calculate this metric for PlayAGS, here is the formula:

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

0.017 = $12 million ÷ ($737 million – $55 million) (Based on the last twelve months to September 2021).

Thereby, PlayAGS has a ROCE of 1.7%. Ultimately, this is a low yield and is below the hotel industry average of 9.0%.

NYSE: AGS Return on Capital Employed February 14, 2022

Above, you can see how PlayAGS’s current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you want to see what analysts are predicting for the future, you should check out our free report for PlayAGS.

What is the return trend?

We are delighted to see that PlayAGS is reaping the rewards of its investments and is now profitable. While the company was unprofitable in the past, it has now turned the tide and is earning 1.7% on its capital. Interestingly, the capital employed by the business has remained relatively stable, so these higher returns either come from paying off past investments or from increased efficiency. That being said, while an increase in efficiency is undoubtedly attractive, it would be useful to know if the company has any investment plans for the future. After all, a company can only become a long-term multi-bagger if it continually reinvests in itself at high rates of return.

What we can learn from PlayAGS ROCE

In summary, we are pleased to see that PlayAGS was able to increase efficiency and earn higher rates of return on the same amount of capital. And since the stock has fallen 68% in the last three years, there could be an opportunity here. It therefore seems warranted to do further research on this company and determine whether or not these trends will continue.

One more thing we spotted 2 warning signs against PlayAGS that you might find interesting.

While PlayAGS doesn’t currently generate the highest returns, we’ve compiled a list of companies that currently generate over 25% return on equity. look at this free list here.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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