Shareholders Are Optimistic That HireQuest (NASDAQ:HQI) Will Multiply In Value

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. So, when we ran our eye over HireQuest's (NASDAQ:HQI) trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 HireQuest is:

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

0.25 = US$16m ÷ (US$103m - US$37m) (Based on the trailing twelve months to December 2022).

So, HireQuest has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 12%.

View our latest analysis for HireQuest

Above you can see how the current ROCE for HireQuest compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for HireQuest.

What Can We Tell From HireQuest's ROCE Trend?

HireQuest deserves to be commended in regards to it's returns. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 400% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

In short, we'd argue HireQuest has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 283% return over the last three years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While HireQuest looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HQI is currently trading for a fair price.

HireQuest is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.