The Returns At Hub Group (NASDAQ:HUBG) Aren't Growing
Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Hub Group (NASDAQ:HUBG), it didn't seem to tick all of these boxes.
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 Hub Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.09 = US$205m ÷ (US$2.9b - US$658m) (Based on the trailing twelve months to December 2023).
So, Hub Group has an ROCE of 9.0%. In absolute terms, that's a low return but it's around the Logistics industry average of 10.0%.
Check out our latest analysis for Hub Group
Above you can see how the current ROCE for Hub Group 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 Hub Group here for free.
So How Is Hub Group's ROCE Trending?
There are better returns on capital out there than what we're seeing at Hub Group. The company has employed 63% more capital in the last five years, and the returns on that capital have remained stable at 9.0%. 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
In summary, Hub Group has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 98% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
On a final note, we've found 1 warning sign for Hub Group that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
