Returns Are Gaining Momentum At Patriot Transportation Holding (NASDAQ:PATI)
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. 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. So on that note, Patriot Transportation Holding (NASDAQ:PATI) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Patriot Transportation Holding, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.054 = US$2.3m ÷ (US$50m - US$7.5m) (Based on the trailing twelve months to June 2023).
Therefore, Patriot Transportation Holding has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 10%.
Check out our latest analysis for Patriot Transportation Holding
Historical performance is a great place to start when researching a stock so above you can see the gauge for Patriot Transportation Holding's ROCE against it's prior returns. If you'd like to look at how Patriot Transportation Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
Patriot Transportation Holding has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 161% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 28% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
What We Can Learn From Patriot Transportation Holding's ROCE
In a nutshell, we're pleased to see that Patriot Transportation Holding has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 17% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing: We've identified 3 warning signs with Patriot Transportation Holding (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.
While Patriot Transportation Holding 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.
