Yahoo Finance We Like UFP Industries' (NASDAQ:UFPI) Returns And Here's How They're Trending
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. And in light of that, the trends we're seeing at UFP Industries' (NASDAQ:UFPI) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for UFP Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$641m ÷ (US$3.0b - US$667m) (Based on the trailing twelve months to September 2021).
Thus, UFP Industries has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Building industry average of 14%.
See our latest analysis for UFP Industries
In the above chart we have measured UFP Industries' 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 report for UFP Industries.
How Are Returns Trending?
Investors would be pleased with what's happening at UFP Industries. Over the last five years, returns on capital employed have risen substantially to 27%. The amount of capital employed has increased too, by 134%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From UFP Industries' ROCE
All in all, it's terrific to see that UFP Industries is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
UFP Industries does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
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.
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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