Universal Logistics Holdings (NASDAQ:ULH) Knows How To Allocate Capital Effectively

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Universal Logistics Holdings' (NASDAQ:ULH) returns on capital, so let's have a look.

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

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

0.24 = US$221m ÷ (US$1.2b - US$300m) (Based on the trailing twelve months to April 2023).

Therefore, Universal Logistics Holdings has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Transportation industry average of 14%.

Check out our latest analysis for Universal Logistics Holdings

In the above chart we have measured Universal Logistics Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Universal Logistics Holdings here for free.

SWOT Analysis for Universal Logistics Holdings

So How Is Universal Logistics Holdings' ROCE Trending?

The trends we've noticed at Universal Logistics Holdings are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. The amount of capital employed has increased too, by 113%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, Universal Logistics Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 25% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Universal Logistics Holdings that you might find interesting.

Universal Logistics Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.