Returns On Capital Signal Tricky Times Ahead For Hub Group (NASDAQ:HUBG)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after investigating Hub Group (NASDAQ:HUBG), we don't think it's current trends fit the mold of a multi-bagger.

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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 Hub Group, this is the formula:

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

0.063 = US$142m ÷ (US$2.8b - US$555m) (Based on the trailing twelve months to March 2025).

Thus, Hub Group has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Logistics industry average of 13%.

View our latest analysis for Hub Group

Above you can see how the current ROCE for Hub Group 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 analyst report for Hub Group .

What Can We Tell From Hub Group's ROCE Trend?

On the surface, the trend of ROCE at Hub Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.3% from 8.9% five years ago. However it looks like Hub Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Hub Group's reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 42% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you're still interested in Hub Group it's worth checking out our FREE intrinsic value approximation for HUBG to see if it's trading at an attractive price in other respects.

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

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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.