Yahoo Finance Return Trends At United Parcel Service (NYSE:UPS) Aren't Appealing
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, the ROCE of United Parcel Service (NYSE:UPS) looks decent, right now, so lets see what the trend of returns can tell us.
What Is 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. To calculate this metric for United Parcel Service, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$8.0b ÷ (US$69b - US$15b) (Based on the trailing twelve months to June 2024).
So, United Parcel Service has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Logistics industry.
View our latest analysis for United Parcel Service
In the above chart we have measured United Parcel Service's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for United Parcel Service .
What The Trend Of ROCE Can Tell Us
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 39% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that United Parcel Service has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line On United Parcel Service's ROCE
The main thing to remember is that United Parcel Service has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 31% return to shareholders who held over that period. So to determine if United Parcel Service is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for United Parcel Service (of which 1 makes us a bit uncomfortable!) that you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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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