Returns On Capital At J.B. Hunt Transport Services (NASDAQ:JBHT) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at J.B. Hunt Transport Services' (NASDAQ:JBHT) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

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 J.B. Hunt Transport Services, this is the formula:

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

0.15 = US$993m ÷ (US$8.6b - US$1.8b) (Based on the trailing twelve months to December 2023).

So, J.B. Hunt Transport Services has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Transportation industry average of 8.7% it's much better.

Check out our latest analysis for J.B. Hunt Transport Services

Above you can see how the current ROCE for J.B. Hunt Transport Services 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.

What Can We Tell From J.B. Hunt Transport Services' ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 81% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that J.B. Hunt Transport Services has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 98% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, J.B. Hunt Transport Services does come with some risks, and we've found 1 warning sign that you should be aware of.

While J.B. Hunt Transport Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.