What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Ergo, when we looked at the ROCE trends at Landstar System (NASDAQ:LSTR), we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Landstar System is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.33 = US$388m ÷ (US$1.9b - US$670m) (Based on the trailing twelve months to September 2023).
Thus, Landstar System has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 9.1% earned by companies in a similar industry.
Check out our latest analysis for Landstar System
In the above chart we have measured Landstar System's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Landstar System.
The Trend Of ROCE
It's hard not to be impressed by Landstar System's returns on capital. Over the past five years, ROCE has remained relatively flat at around 33% and the business has deployed 35% more capital into its operations. Now considering ROCE is an attractive 33%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Landstar System can keep this up, we'd be very optimistic about its future.
Our Take On Landstar System's ROCE
In short, we'd argue Landstar System has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 114% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
While Landstar System looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LSTR is currently trading for a fair price.
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.