To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of UFP Industries (NASDAQ:UFPI) looks great, so lets see what the trend can tell us.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for UFP Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.33 = US$965m ÷ (US$3.7b - US$803m) (Based on the trailing twelve months to September 2022).
So, UFP Industries has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.
See our latest analysis for UFP Industries
In the above chart we have measured UFP Industries' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is UFP Industries' ROCE Trending?
We like the trends that we're seeing from UFP Industries. Over the last five years, returns on capital employed have risen substantially to 33%. The amount of capital employed has increased too, by 155%. So we're very much inspired by what we're seeing at UFP Industries thanks to its ability to profitably reinvest capital.
What We Can Learn From UFP Industries' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what UFP Industries has. And a remarkable 148% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a separate note, we've found 1 warning sign for UFP Industries you'll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.