In This Article:
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at Heartland Express (NASDAQ:HTLD), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Heartland Express is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.087 = US$75m ÷ (US$949m - US$84m) (Based on the trailing twelve months to March 2021).
Therefore, Heartland Express has an ROCE of 8.7%. On its own, that's a low figure but it's around the 9.9% average generated by the Transportation industry.
Check out our latest analysis for Heartland Express
Above you can see how the current ROCE for Heartland Express 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 Heartland Express.
What Can We Tell From Heartland Express' ROCE Trend?
When we looked at the ROCE trend at Heartland Express, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 8.7% from 13% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Key Takeaway
Bringing it all together, while we're somewhat encouraged by Heartland Express' reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 1.1% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
On a separate note, we've found 1 warning sign for Heartland Express you'll probably want to know about.