Stock Analysis
There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Live Nation Entertainment (NYSE:LYV) looks quite promising in regards to its trends of return on capital.
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Live Nation Entertainment is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.092 = US$872m ÷ (US$19b – US$9.4b) (Based on the trailing twelve months to March 2023).
Therefore, Live Nation Entertainment has an ROCE of 9.2%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 12%.
View our latest analysis for Live Nation Entertainment
Above you can see how the current ROCE for Live Nation Entertainment compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Live Nation Entertainment here for free.
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 103%. So we're very much inspired by what we're seeing at Live Nation Entertainment thanks to its ability to profitably reinvest capital.
Another thing to note, Live Nation Entertainment has a high ratio of current liabilities to total assets of 50%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
To sum it up, Live Nation Entertainment has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 91% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
While Live Nation Entertainment looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LYV is currently trading for a fair price.
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.
What are the risks and opportunities for Live Nation Entertainment?
NYSE:LYV
Live Nation Entertainment
Live Nation Entertainment, Inc. operates as a live entertainment company.
Rewards
Trading at 16.7% below our estimate of its fair value
Earnings are forecast to grow 35.86% per year
Became profitable this year
Risks
No risks detected for LYV from our risks checks.
Share Price
Market Cap
1Y Return
Further research on
Live Nation Entertainment
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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.
Live Nation Entertainment, Inc. operates as a live entertainment company.
High growth potential with excellent balance sheet.
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