Returns Are Gaining Momentum At Hertz Global Holdings (NASDAQ:HTZ)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at Hertz Global Holdings (NASDAQ:HTZ) so let's look a bit deeper.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Hertz Global Holdings, this is the formula:

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

0.13 = US$2.5b ÷ (US$22b - US$1.9b) (Based on the trailing twelve months to September 2022).

So, Hertz Global Holdings has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Transportation industry average of 15%.

Our analysis indicates that HTZ is potentially undervalued!

In the above chart we have measured Hertz Global Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hertz Global Holdings here for free.

What Can We Tell From Hertz Global Holdings' ROCE Trend?

Hertz Global Holdings has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 1,384% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line

To sum it up, Hertz Global Holdings is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 20% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with Hertz Global Holdings (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.