Slowing Rates Of Return At U.S. Xpress Enterprises (NYSE:USX) Leave Little Room For Excitement

By
Simply Wall St
Published
January 10, 2022
NYSE:USX
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after investigating U.S. Xpress Enterprises (NYSE:USX), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on U.S. Xpress Enterprises is:

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

0.046 = US$39m ÷ (US$1.2b - US$401m) (Based on the trailing twelve months to September 2021).

So, U.S. Xpress Enterprises has an ROCE of 4.6%. Ultimately, that's a low return and it under-performs the Transportation industry average of 12%.

Check out our latest analysis for U.S. Xpress Enterprises

roce
NYSE:USX Return on Capital Employed January 10th 2022

Above you can see how the current ROCE for U.S. Xpress Enterprises 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 U.S. Xpress Enterprises Tell Us?

The returns on capital haven't changed much for U.S. Xpress Enterprises in recent years. The company has consistently earned 4.6% for the last four years, and the capital employed within the business has risen 69% 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.

Our Take On U.S. Xpress Enterprises' ROCE

Long story short, while U.S. Xpress Enterprises has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 25% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know more about U.S. Xpress Enterprises, we've spotted 4 warning signs, and 1 of them is concerning.

While U.S. Xpress Enterprises 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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