Returns On Capital At U.S. Xpress Enterprises (NYSE:USX) Paint An Interesting Picture
There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after briefly looking over the numbers, we don't think U.S. Xpress Enterprises (NYSE:USX) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding 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 U.S. Xpress Enterprises is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.02 = US$17m ÷ (US$1.2b - US$317m) (Based on the trailing twelve months to June 2020).
Thus, U.S. Xpress Enterprises has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Transportation industry average of 10%.
View our latest analysis for U.S. Xpress Enterprises
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, you can check out the forecasts from the analysts covering U.S. Xpress Enterprises here for free.
What Does the ROCE Trend For U.S. Xpress Enterprises Tell Us?
In terms of U.S. Xpress Enterprises' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.9% over the last three years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line
To conclude, we've found that U.S. Xpress Enterprises is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 74% over the last year, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
U.S. Xpress Enterprises does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.
While U.S. Xpress Enterprises 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.
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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