Shareholders Are Optimistic That Expeditors International of Washington (NASDAQ:EXPD) Will Multiply In Value

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, the ROCE of Expeditors International of Washington (NASDAQ:EXPD) looks attractive right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Expeditors International of Washington, this is the formula:

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

0.38 = US$1.3b ÷ (US$6.0b - US$2.5b) (Based on the trailing twelve months to June 2021).

So, Expeditors International of Washington has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Logistics industry average of 12%.

See our latest analysis for Expeditors International of Washington

Above you can see how the current ROCE for Expeditors International of Washington 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 Expeditors International of Washington here for free.

The Trend Of ROCE

Expeditors International of Washington deserves to be commended in regards to it's returns. The company has consistently earned 38% for the last five years, and the capital employed within the business has risen 91% 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 Expeditors International of Washington can keep this up, we'd be very optimistic about its future.

Another thing to note, Expeditors International of Washington has a high ratio of current liabilities to total assets of 42%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 158% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Expeditors International of Washington does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

Expeditors International of Washington 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.
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