Is Nine Entertainment Holdings (ASX: NEC) Facing Declining Returns on Capital? Discover the Latest Insights!

If you’re interested in finding a stock that could grow significantly, it’s important to watch a few key indicators. Ideally, you’d want to see a company that is actively reinvesting its profits to generate higher returns over time. Such companies can be described as compounding machines. However, when we took a closer look at Nine Entertainment Holdings (ASX:NEC), it became clear that it may not fully meet these criteria.

One important metric to consider is the Return on Capital Employed (ROCE). This ratio helps investors understand how efficiently a company is generating profit relative to the capital it has invested. For Nine Entertainment Holdings, the ROCE can be calculated using the formula:

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

This results in a ROCE of 11%, calculated as follows: 0.11 = AU$337 million ÷ (AU$4.0 billion – AU$882 million). This return is on par with the average of around 10% typical for the media industry.

Looking at the data, Nine Entertainment Holdings hasn’t seen much change in its returns or capital employed over the past five years. This stability is often seen in mature companies that may not be aggressively reinvesting their earnings anymore. Instead, they’ve likely reached a point where they primarily distribute profits to shareholders. Currently, Nine Entertainment pays out around 74% of its earnings as dividends, which is common for companies in similar situations.

In summary, given its steady returns and the lack of dramatic growth in total shareholder returns over the last five years, it seems that Nine Entertainment Holdings may not be positioned to become a multi-bagger in the near future.

Like many businesses, Nine Entertainment Holdings comes with some risks. Be sure to stay informed about potential issues affecting its performance.

While Nine Entertainment may not shine in terms of returns, there are other companies out there. Some have reported returns exceeding 25%. It’s worth exploring these options if you’re looking for better performing stocks.