The Return Trends At FedEx (NYSE:FDX) Look Promising
3 min read
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at FedEx (NYSE:FDX) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on FedEx is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.094 = US$6.7b ÷ (US$85b – US$14b) (Based on the trailing twelve months to February 2025).
So, FedEx has an ROCE of 9.4%. In absolute terms, that’s a low return and it also under-performs the Logistics industry average of 13%.
Check out our latest analysis for FedEx
In the above chart we have measured FedEx’s prior ROCE against its prior performance, but the future is arguably more important. If you’d like, you can check out the forecasts from the analysts covering FedEx for free.
FedEx is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 1,091% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company’s efficiencies. It’s worth looking deeper into this though because while it’s great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
In summary, we’re delighted to see that FedEx has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 114% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
On a final note, we’ve found 1 warning sign for FedEx that we think you should be aware of.
While FedEx isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
