Rush Enterprises (NASDAQ:RUSH.B) Might Have The Makings Of A Multi-Bagger

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, we've noticed some promising trends at Rush Enterprises (NASDAQ:RUSH.B) so let's look a bit deeper.

Understanding 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. The formula for this calculation on Rush Enterprises is:

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

0.18 = US$421m ÷ (US$3.7b - US$1.3b) (Based on the trailing twelve months to June 2022).

Thus, Rush Enterprises has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Trade Distributors industry average of 15%.

Our analysis indicates that RUSH.B is potentially undervalued!

Above you can see how the current ROCE for Rush Enterprises 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 Rush Enterprises here for free.

What Can We Tell From Rush Enterprises' ROCE Trend?

Investors would be pleased with what's happening at Rush Enterprises. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Rush Enterprises' ROCE

All in all, it's terrific to see that Rush Enterprises is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 76% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Rush Enterprises, we've spotted 3 warning signs, and 2 of them are significant.

While Rush Enterprises may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.