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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. That's why when we briefly looked at J.B. Hunt Transport Services' (NASDAQ:JBHT) ROCE trend, we were very happy with what we saw.
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 J.B. Hunt Transport Services, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$1.3b ÷ (US$7.3b - US$1.9b) (Based on the trailing twelve months to June 2022).
So, J.B. Hunt Transport Services has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.
View our latest analysis for J.B. Hunt Transport Services
In the above chart we have measured J.B. Hunt Transport Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering J.B. Hunt Transport Services here for free.
The Trend Of ROCE
In terms of J.B. Hunt Transport Services' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 24% and the business has deployed 70% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If J.B. Hunt Transport Services can keep this up, we'd be very optimistic about its future.
The Bottom Line On J.B. Hunt Transport Services' ROCE
In short, we'd argue J.B. Hunt Transport Services has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 103% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
On a final note, we found 2 warning signs for J.B. Hunt Transport Services (1 makes us a bit uncomfortable) you should be aware of.