Should We Be Excited About The Trends Of Returns At Hawaiian Holdings (NASDAQ:HA)?

When looking for a multi-excavator, there are a few things to look out for. A common approach is to find a company with increasing return on investment (ROCE) that increases in conjunction with increasing capital employed. Simply put, these types of businesses are compounding machines, which means they are continually reinvesting their profits with ever higher returns. However, according to research by Hawaiian Holdings (NASDAQ: HA), we don't believe current trends will fit into the shape of a multi-excavator.
Return on Capital Employed (ROCE): What is it?
For those unsure of what ROCE is, it measures the amount of pre-tax profit a company can make from the capital invested in its business. Analysts use this formula to calculate it for Hawaiian Holdings:
Return on investment = earnings before interest and taxes (EBIT) ÷ (total assets - current liabilities)
0.006 = $ 18 million ÷ ($ 4.0 billion - $ 1.0 billion) (based on the last twelve months through June 2020).
So Hawaiian Holdings has a ROCE of 0.6%. Ultimately, this is a low return and is below the industry average of 5.8%.
Check out our latest analysis for Hawaiian Holdings
In the graph above, we measured Hawaiian Holdings' previous ROCE against previous performance, but the future arguably is more important. If interested, you can check out the analyst forecast on our free analyst forecast for the company report.
How are the returns trending?
On the surface, the ROCE trend at Hawaiian Holdings is not building trust. More specifically, the ROCE has fallen from 16% in the past five years. This is a little worrying given the company is putting in more capital while revenues have been falling. This could mean that the company is losing its competitive advantage or market share as more money is invested in companies but actually a lower return is achieved - "less for your money" per se.
The key to take away
We're a little concerned about Hawaiian Holdings because, despite putting more capital in the business, both ROI and sales have decreased. Investors didn't take these developments well, as the stock is down 52% from five years ago. If these trends didn't return to more positive development, we'd look elsewhere.
If you want to keep looking for Hawaiian Holdings, you may be aware of Warning Sign 1 that our analysis discovered.
While Hawaiian Holdings doesn't get the highest return on equity, check out this free list of companies that make high returns on equity with solid balance sheets.
This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.

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