Returns On Capital At Landstar System (NASDAQ:LSTR) Paint A Concerning Picture
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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, while the ROCE is currently high for Landstar System (NASDAQ:LSTR), we aren't jumping out of our chairs because returns are decreasing.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Landstar System is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.30 = US$340m ÷ (US$1.8b - US$675m) (Based on the trailing twelve months to December 2023).
So, Landstar System has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 8.1% earned by companies in a similar industry.
View our latest analysis for Landstar System
Above you can see how the current ROCE for Landstar System 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 analyst report for Landstar System .
The Trend Of ROCE
On the surface, the trend of ROCE at Landstar System doesn't inspire confidence. While it's comforting that the ROCE is high, five years ago it was 39%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
What We Can Learn From Landstar System's ROCE
We're a bit apprehensive about Landstar System because despite more capital being deployed in the business, returns on that capital and sales have both fallen. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 93% return. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.
Like most companies, Landstar System does come with some risks, and we've found 2 warning signs that you should be aware of.
Landstar System is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
