Does Radiant Logistics (NYSEMKT:RLGT) Have The Makings Of A Multi-Bagger?
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Radiant Logistics (NYSEMKT:RLGT) looks quite promising in regards to its trends of return on capital.
What is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Radiant Logistics is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$20m ÷ (US$289m - US$104m) (Based on the trailing twelve months to September 2020).
Thus, Radiant Logistics has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Logistics industry average of 10%.
See our latest analysis for Radiant Logistics
Above you can see how the current ROCE for Radiant Logistics compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Radiant Logistics' ROCE Trend?
Radiant Logistics' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 110% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
The Bottom Line On Radiant Logistics' ROCE
In summary, we're delighted to see that Radiant Logistics has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 54% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Radiant Logistics does come with some risks, and we've found 1 warning sign that you should be aware of.
While Radiant Logistics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
This article by Simply Wall St is general in nature. 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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