Knight-Swift Transportation Holdings (NYSE:KNX) Hasn't Managed To Accelerate Its Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Knight-Swift Transportation Holdings (NYSE:KNX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.061 = US$639m ÷ (US$11b - US$945m) (Based on the trailing twelve months to June 2023).

Thus, Knight-Swift Transportation Holdings has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 12%.

See our latest analysis for Knight-Swift Transportation Holdings

Above you can see how the current ROCE for Knight-Swift Transportation Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Knight-Swift Transportation Holdings.

What Can We Tell From Knight-Swift Transportation Holdings' ROCE Trend?

There are better returns on capital out there than what we're seeing at Knight-Swift Transportation Holdings. The company has consistently earned 6.1% for the last five years, and the capital employed within the business has risen 48% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Knight-Swift Transportation Holdings' ROCE

In summary, Knight-Swift Transportation Holdings has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 71% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Knight-Swift Transportation Holdings does have some risks though, and we've spotted 1 warning sign for Knight-Swift Transportation Holdings that you might be interested in.

While Knight-Swift Transportation Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.