Stock Analysis

Here's What To Make Of Universal Logistics Holdings' (NASDAQ:ULH) Returns On Capital

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NasdaqGS:ULH
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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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Universal Logistics Holdings (NASDAQ:ULH), it didn't seem to tick all of these boxes.

Understanding 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. The formula for this calculation on Universal Logistics Holdings is:

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

0.089 = US$70m ÷ (US$1.1b - US$273m) (Based on the trailing twelve months to October 2020).

So, Universal Logistics Holdings has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Transportation industry average of 9.8%.

Check out our latest analysis for Universal Logistics Holdings

roce
NasdaqGS:ULH Return on Capital Employed January 27th 2021

Above you can see how the current ROCE for Universal Logistics Holdings 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 Does the ROCE Trend For Universal Logistics Holdings Tell Us?

On the surface, the trend of ROCE at Universal Logistics Holdings doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Universal Logistics Holdings is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 90% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing to note, we've identified 1 warning sign with Universal Logistics Holdings and understanding this should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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