Under The Bonnet, P.A.M. Transportation Services' (NASDAQ:PTSI) Returns Look Impressive
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of P.A.M. Transportation Services (NASDAQ:PTSI) we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on P.A.M. Transportation Services is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$121m ÷ (US$749m - US$142m) (Based on the trailing twelve months to December 2022).
Therefore, P.A.M. Transportation Services has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Transportation industry average of 14%.
View our latest analysis for P.A.M. Transportation Services
In the above chart we have measured P.A.M. Transportation Services' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From P.A.M. Transportation Services' ROCE Trend?
P.A.M. Transportation Services is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 116%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Bottom Line On P.A.M. Transportation Services' ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what P.A.M. Transportation Services has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for P.A.M. Transportation Services (of which 1 shouldn't be ignored!) that you should know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
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