Old Dominion Freight Line (NASDAQ:ODFL) Could Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, the ROCE of Old Dominion Freight Line (NASDAQ:ODFL) looks great, so lets see what the trend 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. Analysts use this formula to calculate it for Old Dominion Freight Line:

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

0.32 = US$1.4b ÷ (US$4.8b - US$464m) (Based on the trailing twelve months to December 2021).

Thus, Old Dominion Freight Line has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for Old Dominion Freight Line

In the above chart we have measured Old Dominion Freight Line's prior ROCE against its prior performance, but the future is arguably more important. 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 Old Dominion Freight Line's ROCE Trend?

We like the trends that we're seeing from Old Dominion Freight Line. Over the last five years, returns on capital employed have risen substantially to 32%. The amount of capital employed has increased too, by 81%. So we're very much inspired by what we're seeing at Old Dominion Freight Line thanks to its ability to profitably reinvest capital.

What We Can Learn From Old Dominion Freight Line's ROCE

To sum it up, Old Dominion Freight Line has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Old Dominion Freight Line can keep these trends up, it could have a bright future ahead.

Like most companies, Old Dominion Freight Line does come with some risks, and we've found 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.