Patriot Transportation Holding (NASDAQ:PATI) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Patriot Transportation Holding (NASDAQ:PATI) so let's look a bit deeper.

What Is 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 Patriot Transportation Holding, this is the formula:

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

0.054 = US$2.3m ÷ (US$50m - US$7.5m) (Based on the trailing twelve months to June 2023).

Thus, Patriot Transportation Holding has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 13%.

See our latest analysis for Patriot Transportation Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Patriot Transportation Holding's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Patriot Transportation Holding, check out these free graphs here.

What Does the ROCE Trend For Patriot Transportation Holding Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Patriot Transportation Holding. The data shows that returns on capital have increased by 161% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was five years ago. Patriot Transportation Holding may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In the end, Patriot Transportation Holding has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 12% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 3 warning signs we've spotted with Patriot Transportation Holding (including 1 which shouldn't be ignored) .

While Patriot Transportation Holding 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.