Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Gambling.com Group’s (NASDAQ:GAMB) trend of ROCE, we liked what we saw.

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 Gambling.com Group is:

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

0.16 = US$18m ÷ (US$147m – US$36m) (Based on the trailing twelve months to March 2023).

Therefore, Gambling.com Group has an ROCE of 16%. On its own, that’s a standard return, however it’s much better than the 9.5% generated by the Media industry.

See our latest analysis for Gambling.com Group

In the above chart we have measured Gambling.com Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like to see what analysts are forecasting going forward, you should check out our free report for Gambling.com Group.

So How Is Gambling.com Group’s ROCE Trending?

While the current returns on capital are decent, they haven’t changed much. Over the past four years, ROCE has remained relatively flat at around 16% and the business has deployed 232% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Gambling.com Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Gambling.com Group’s ROCE

In the end, Gambling.com Group has proven its ability to adequately reinvest capital at good rates of return. Therefore it’s no surprise that shareholders have earned a respectable 13% return if they held over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we’ve found 3 warning signs for Gambling.com Group that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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