J.B. Hunt Transport Services (NASDAQ:JBHT) Has More To Do To Multiply In Value Going Forward
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at J.B. Hunt Transport Services' (NASDAQ:JBHT) ROCE trend, we were pretty happy with what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for J.B. Hunt Transport Services:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$1.1b ÷ (US$8.4b - US$1.8b) (Based on the trailing twelve months to September 2023).
Thus, J.B. Hunt Transport Services has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 9.1% it's much better.
Check out our latest analysis for J.B. Hunt Transport Services
Above you can see how the current ROCE for J.B. Hunt Transport Services 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 J.B. Hunt Transport Services here for free.
What Does the ROCE Trend For J.B. Hunt Transport Services Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 88% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.
In Conclusion...
To sum it up, J.B. Hunt Transport Services has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 123% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
One more thing, we've spotted 1 warning sign facing J.B. Hunt Transport Services that you might find interesting.
While J.B. Hunt Transport Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
