USA Truck (NASDAQ:USAK) Is Looking To Continue Growing Its Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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.
So when we looked at USA Truck (NASDAQ:USAK) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for USA Truck: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) / (Total Assets – Current Liabilities)
0.10 = US£27m / (US£343m – US£76m) (Based on the trailing twelve months to June 2021). Therefore, USA Truck has an ROCE of 10%. That’s a relatively normal return on capital, and it’s around the 11% generated by the Transportation industry.
NasdaqGS:USAK Return on Capital Employed October 8th 2021
Above you can see how the current ROCE for USA Truck 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 USA Truck.
So How Is USA Truck’s ROCE Trending?
USA Truck’s ROCE growth is quite impressive.
More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 84% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it’s worth investigating what the management team has planned for long term growth prospects.
The Bottom Line
To bring it all together, USA Truck has done well to increase the returns it’s generating from its capital employed.
And with a respectable 73% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it’s worth looking further into this stock because if USA Truck can keep these trends up, it could have a bright future ahead. If you’d like to know about the risks facing USA Truck, we’ve discovered 1 warning sign that you should be aware of.
While USA Truck isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets. 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. Have feedback on this article?
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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