Knight-Swift Transportation Holdings (NYSE:KNX) Will Want To Turn Around Its Return Trends

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Knight-Swift Transportation Holdings (NYSE:KNX), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. 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)

0.015 = US$163m ÷ (US$13b - US$1.7b) (Based on the trailing twelve months to June 2024).

So, Knight-Swift Transportation Holdings has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Transportation industry average of 7.7%.

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Knight-Swift Transportation Holdings .

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

On the surface, the trend of ROCE at Knight-Swift Transportation Holdings doesn't inspire confidence. To be more specific, ROCE has fallen from 7.5% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Knight-Swift Transportation Holdings' ROCE

While returns have fallen for Knight-Swift Transportation Holdings in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 56% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we've found 3 warning signs for Knight-Swift Transportation Holdings that we think you should be aware of.

While Knight-Swift Transportation Holdings 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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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.