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To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at UFP Industries (NASDAQ:UFPI), it didn't seem to tick all of these boxes.
We've discovered 1 warning sign about UFP Industries. View them for free.
Understanding 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. The formula for this calculation on UFP Industries is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$457m ÷ (US$4.2b - US$497m) (Based on the trailing twelve months to March 2025).
Thus, UFP Industries has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 14%.
See our latest analysis for UFP Industries
In the above chart we have measured UFP Industries' 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 UFP Industries for free.
How Are Returns Trending?
On the surface, the trend of ROCE at UFP Industries doesn't inspire confidence. To be more specific, ROCE has fallen from 17% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. 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.
What We Can Learn From UFP Industries' ROCE
In summary, UFP Industries is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 136% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.
One more thing, we've spotted 1 warning sign facing UFP Industries that you might find interesting.