Returns on capital are remarkable for PAM Transportation Services (NASDAQ:PTSI)
If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. In a perfect world, we would like to see a company invest more capital in their business and ideally the returns from that capital also increase. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Speaking of which, we’ve noticed big changes in PAM transport services’ (NASDAQ:PTSI) capital returns, so let’s take a look.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. The formula for this calculation on PAM Transportation Services is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.22 = $116 million ÷ ($664 million – $129 million) (Based on the last twelve months to March 2022).
Therefore, PAM Transportation Services posted a ROCE of 22%. This is a fantastic return and not only that, it exceeds the 14% average earned by companies in a similar industry.
See our latest analysis for PAM Transportation Services
Above, you can see how PAM Transportation Services’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What can we say about the ROCE trend of PAM Transportation Services?
The trends we’ve noticed at PAM Transportation Services are quite reassuring. Figures show that over the past five years, returns generated on capital employed have increased significantly to 22%. Basically, the business earns more per dollar of invested capital and on top of that, 86% more capital is also utilized now. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, a common combination among multi-baggers.
In summary, PAM Transportation Services has proven that it can reinvest in the business and generate higher returns on that capital employed, which is great. Given that the stock has returned a staggering 577% to shareholders over the past five years, it seems investors recognize these changes. Therefore, we think it would be worth checking whether these trends will continue.
However, PAM Transportation Services involves certain risks, we have observed 2 warning signs in our investment analysis, and 1 of them cannot be ignored…
PAM Transportation Services isn’t the only stock generating high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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