What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Old Dominion Freight Line (NASDAQ:ODFL) we really liked what we saw.
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 Old Dominion Freight Line, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.33 = US$1.6b ÷ (US$5.4b – US$554m) (Based on the trailing twelve months to September 2024).
Therefore, Old Dominion Freight Line has an ROCE of 33%. That’s a fantastic return and not only that, it outpaces the average of 7.6% earned by companies in a similar industry.
Check out our latest analysis for Old Dominion Freight Line
Above you can see how the current ROCE for Old Dominion Freight Line 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 analyst report for Old Dominion Freight Line .
Old Dominion Freight Line is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 33%. The amount of capital employed has increased too, by 39%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.
In summary, it’s great to see that Old Dominion Freight Line can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 184% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it’s worth looking further into this stock because if Old Dominion Freight Line can keep these trends up, it could have a bright future ahead.
If you’d like to know about the risks facing Old Dominion Freight Line, we’ve discovered 1 warning sign that you should be aware of.
