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Here's What To Make Of Universal Logistics Holdings' (NASDAQ:ULH) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Universal Logistics Holdings (NASDAQ:ULH), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Universal Logistics Holdings:

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Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.098 = US$68m ÷ (US$963m - US$270m) (Based on the trailing twelve months to July 2020).

Thus, Universal Logistics Holdings has an ROCE of 9.8%. Even though it's in line with the industry average of 10%, it's still a low return by itself.

See our latest analysis for Universal Logistics Holdings

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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.

So How Is Universal Logistics Holdings' ROCE Trending?

On the surface, the trend of ROCE at Universal Logistics Holdings doesn't inspire confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 9.8%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Universal Logistics Holdings' ROCE

To conclude, we've found that Universal Logistics Holdings is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 21% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing to note, we've identified 4 warning signs with Universal Logistics Holdings and understanding them should be part of your investment process.

While Universal Logistics Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.