United Parcel Service's Investors Are Optimistic the Company's Share Price Will Rise

Discovering potential multi-bagger companies involves examining various financial metrics, including the returns on capital employed (ROCE). A rising ROCE, coupled with an increasing amount of capital employed, indicates a compounding machine capable of reinvesting earnings back into the business to generate higher returns. Upon analyzing United Parcel Service's (NYSE:UPS) trend of ROCE, the results were particularly promising.

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For those unfamiliar with ROCE, it gauges a company's ability to generate pre-tax profits from the capital employed in its business. In the case of United Parcel Service, the calculation is as follows:

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

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The current ROCE for United Parcel Service stands at an impressive 23%, surpassing the average of 14% seen in similar industries. This outstanding return demonstrates the company's ability to excel in utilizing its capital effectively.

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Assessing the company's returns over time is crucial in understanding its trajectory. United Parcel Service has maintained a consistently strong ROCE of around 23% over the past five years, while simultaneously increasing its capital deployment by 68%. Such stable and remarkable returns on reinvestment are characteristic of well-operated businesses with favorable models.

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In light of the company's proven capacity to reinvest capital at high rates of return, which is a hallmark of a potential multi-bagger, it comes as no surprise that shareholders have witnessed an impressive 84% return over the last five years. While investors are recognizing these promising trends, further research into the stock is recommended.

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Nevertheless, as with any investment, it is essential to be mindful of potential risks. For United Parcel Service, there is one warning sign that merits consideration. Conducting thorough due diligence is prudent when making investment decisions.