Universal Logistics Holdings (NASDAQ:ULH) Is Investing Its Capital With Increasing Efficiency
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, the ROCE of Universal Logistics Holdings (NASDAQ:ULH) looks great, so lets see what the trend can tell us.
Understanding 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 Universal Logistics Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = US$240m ÷ (US$1.2b - US$287m) (Based on the trailing twelve months to December 2022).
Thus, Universal Logistics Holdings has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
View our latest analysis for Universal Logistics Holdings
Above you can see how the current ROCE for Universal Logistics Holdings 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 Universal Logistics Holdings here for free.
What Does the ROCE Trend For Universal Logistics Holdings Tell Us?
We like the trends that we're seeing from Universal Logistics Holdings. Over the last five years, returns on capital employed have risen substantially to 26%. The amount of capital employed has increased too, by 123%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
All in all, it's terrific to see that Universal Logistics Holdings is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 39% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
Universal Logistics Holdings does have some risks though, and we've spotted 1 warning sign for Universal Logistics Holdings that you might be interested in.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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