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Returns On Capital At U.S. Xpress Enterprises (NYSE:USX) Have Stalled

·2 min read

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at U.S. Xpress Enterprises (NYSE:USX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on U.S. Xpress Enterprises is:

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

0.068 = US$55m ÷ (US$1.2b - US$366m) (Based on the trailing twelve months to March 2021).

So, U.S. Xpress Enterprises has an ROCE of 6.8%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 9.9%.

See our latest analysis for U.S. Xpress Enterprises

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roce

In the above chart we have measured U.S. Xpress Enterprises' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for U.S. Xpress Enterprises.

So How Is U.S. Xpress Enterprises' ROCE Trending?

There are better returns on capital out there than what we're seeing at U.S. Xpress Enterprises. The company has employed 77% more capital in the last four years, and the returns on that capital have remained stable at 6.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

Long story short, while U.S. Xpress Enterprises has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 116% return in the last year, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 1 warning sign facing U.S. Xpress Enterprises that you might find interesting.

While U.S. Xpress Enterprises 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.