Here's What's Concerning About Knight-Swift Transportation Holdings' (NYSE:KNX) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Knight-Swift Transportation Holdings (NYSE:KNX), we don't think it's current trends fit the mold of a multi-bagger.

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 Knight-Swift Transportation Holdings, this is the formula:

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

0.026 = US$285m ÷ (US$13b - US$1.8b) (Based on the trailing twelve months to December 2023).

Thus, Knight-Swift Transportation Holdings has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Transportation industry average of 7.5%.

View our latest analysis for Knight-Swift Transportation Holdings

In the above chart we have measured Knight-Swift Transportation Holdings' 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 analyst report for Knight-Swift Transportation Holdings .

The Trend Of ROCE

When we looked at the ROCE trend at Knight-Swift Transportation Holdings, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.3% over the last five years. However it looks like Knight-Swift Transportation Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Knight-Swift Transportation Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Knight-Swift Transportation Holdings' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 80% 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.

If you want to continue researching Knight-Swift Transportation Holdings, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.