Why we like Wingstop Inc. (NASDAQ: WING) 33% return on investment

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<p class = "Canvas-Atom Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Today we will be Wingstop Inc. (NASDAQ: WING) to determine whether it is suitable as an investment idea. In particular, we look at the return on capital employed (ROCE), as this gives us an insight into how efficiently the company can make profits with the capital it needs. "Data-reactid =" 27 "> Today we are going to evaluate Wingstop Inc. (NASDAQ: WING) is examining whether it is an investment idea, and in particular is examining the return on capital employed (ROCE) to gain an insight into how efficiently the company can make profits from the capital it requires.

First, we'll look at how we calculate the ROCE. Next, we'll compare it to others in its industry. Finally, let's take a look at how current liabilities affect ROCE.

Understanding Return on Investment (ROCE)

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "ROCE is a metric for assessing how much tax revenue (in Percent) that a company earns with the capital invested in its business If all other factors are the same, a better business has a higher ROCE. Overall, it is a valuable measure that has its mistakes. Renowned investment researcher Michael Mauboussin has suggested A high ROCE can indicate that a dollar invested in the company generates more than one dollar. "data-reactid =" 30 "> The ROCE is a measure of the evaluation of the pre-tax profit (in percent). a The company earns with the capital invested in its business. If everything else is the same, a better business has a higher ROCE. Overall, it's a valuable metric that has its flaws, and renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate "A dollar invested in the company generates more than a dollar's worth."

How do we calculate the ROCE?

The formula for calculating the return on investment is:

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Return on investment = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)"data-reactid =" 33 ">Return on investment = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

Or for wingstop:

$ 0.33 = $ 44 million ($ 168 million – $ 37 million) (Based on the past twelve months to September 2019.)

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "So, Wingstop has a ROCE of 33%. "data-reactid =" 36 "> So, Wingstop has a ROCE of 33%.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Check out our latest analysis for Wingstop "data-reactid =" 37 "> Check out our latest analysis for Wingstop

Does Wingstop have a good ROCE?

One way to evaluate ROCE is to compare similar companies. In our analysis, Wingstop's ROCE is well above the 8.5% average in the hotel industry. We would rate this positively as it suggests that capital is being used more effectively than other similar companies. Apart from the industry comparison, Wingstop's absolute ROCE currently looks quite high.

You can see in the image below how Wingstops ROCE is compared to its industry. Click here to learn more about past growth.

NasdaqGS: WING Past Revenue and Net Income, January 3, 2020

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "Remember that this metric is backward-them shows what has happened in the past and does not predict the future exactly: Companies in cyclical sectors can be difficult to understand with the ROCE, since the returns are usually high in boom times and low in bust times instead of over an entire cycle Since the future is so important to investors, you should consider ours free Wingstop analyst forecast report, "data-reactid =" 53 "> Remember that this metric is backwards-it shows what happened in the past and does not predict the future exactly. Companies in cyclical industries may be difficult to understand with ROCE, as is usually the case, look high in boom times and low in bus times, because ROCE only looks at one year instead of taking returns across an entire cycle into account, as the future is so important to investors, you should consider ours free Wingstop analyst forecast report.

Wingstop's current liabilities and their impact on ROCE

Short-term liabilities are short-term bills that must be paid within 12 months or less. Because of the way the ROCE equation works, the short-term maturity of large bills may seem like a company has less capital and therefore a higher ROCE than usual. To counteract this, we check whether a company has high short-term liabilities in relation to total assets.

Wingstop has liabilities of $ 37 million and total assets of $ 168 million. Therefore, his short-term liabilities correspond to approximately 22% of his total assets. A minimum amount of short-term liabilities limits the impact on ROCE.

Our Take On Wingstop ROCE

<p class = "Canvas-Atom-Canvas-Text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Low short-term liabilities and high ROCE are good Combination Wingstop looks very interesting and Wingstop adapts well to this analysis. But it is far from the only company that delivers excellent numbers , You may also want to check this free Collection of companies with excellent profit growth."data-reactid =" 58 "> Low short-term liabilities and a high ROCE are a good combination that makes Wingstop interesting. Wingstop is doing well in this analysis. But it is far from the only company that delivers excellent numbers , You may also want to check this free Collection of companies with excellent profit growth.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "For those who like to search profitable investments This free List of growing companies with recent insider purchases might be just the thing."data-reactid =" 63 "> For those who like to search profitable investments This free List of growing companies with recent insider purchases might be just the thing.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 64 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.