AMERCO (NASDAQ:UHAL) Hasn't Managed To Accelerate Its Returns

By
Simply Wall St
Published
February 24, 2022
NasdaqGS:UHAL
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over AMERCO's (NASDAQ:UHAL) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

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 AMERCO, this is the formula:

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

0.10 = US$1.6b ÷ (US$17b - US$1.2b) (Based on the trailing twelve months to December 2021).

Thus, AMERCO has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Transportation industry.

View our latest analysis for AMERCO

roce
NasdaqGS:UHAL Return on Capital Employed February 24th 2022

In the above chart we have measured AMERCO's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AMERCO.

What Does the ROCE Trend For AMERCO Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 83% more capital into its operations. 10% is a pretty standard return, and it provides some comfort knowing that AMERCO has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On AMERCO's ROCE

The main thing to remember is that AMERCO has proven its ability to continually reinvest at respectable rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing to note, we've identified 2 warning signs with AMERCO and understanding these should be part of your investment process.

While AMERCO 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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