Stock Analysis

LKQ (NASDAQ:LKQ) Shareholders Will Want The ROCE Trajectory To Continue

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NasdaqGS:LKQ
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in LKQ's (NASDAQ:LKQ) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for LKQ:

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

0.15 = US$1.4b ÷ (US$12b - US$2.5b) (Based on the trailing twelve months to June 2022).

Therefore, LKQ has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.

Check out our latest analysis for LKQ

roce
NasdaqGS:LKQ Return on Capital Employed October 4th 2022

Above you can see how the current ROCE for LKQ compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

LKQ is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From LKQ's 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 LKQ has. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 3 warning signs we've spotted with LKQ (including 1 which is concerning) .

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

Valuation is complex, but we're helping make it simple.

Find out whether LKQ is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

About NasdaqGS:LKQ

LKQ

LKQ Corporation distributes replacement parts, components, and systems used in the repair and maintenance of vehicles.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation4
Future Growth0
Past Performance5
Financial Health5
Dividends3

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet with solid track record.