If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 on that note, Patriot Transportation Holding (NASDAQ:PATI) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

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 Patriot Transportation Holding, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.054 = US$2.3m ÷ (US$50m - US$7.5m) (Based on the trailing twelve months to June 2023).

Therefore, Patriot Transportation Holding has an ROCE of 5.4%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 10%.

Check out our latest analysis for Patriot Transportation Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Patriot Transportation Holding's ROCE against it's prior returns. If you'd like to look at how Patriot Transportation Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Patriot Transportation Holding has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 161% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 28% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

What We Can Learn From Patriot Transportation Holding's ROCE

In a nutshell, we're pleased to see that Patriot Transportation Holding has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 17% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.