The Compounding Machine: Why United Rentals' ROCE Advantage Positions It for Multi-Decade Growth

The search for “compounders”—stocks that generate ever-increasing returns on capital while reinvesting at scale—has never been more critical in a volatile market. United Rentals (URI) is one such rare breed. With a Return on Capital Employed (ROCE) of 17% in 2024, it outpaces the industry average of 12%, while expanding its capital base by 44% over five years. This combination creates a compounding engine that few rivals can match. Here's why this stock deserves a permanent place in long-term portfolios.

The ROCE Advantage: URI's Unassailable Edge

ROCE is the ultimate measure of a company's ability to generate profits from the capital it deploys. For United Rentals, this metric has surged to 17% as of March 2025, far exceeding the 12% industry average and the 11% ROCE of the broader Trade Distributors sector. This gap isn't a fluke—it's the result of strategic discipline.

While competitors struggle with overcapacity or pricing pressures, URI's scale allows it to negotiate lower equipment costs, optimize fleet utilization, and dominate high-margin niches like construction and industrial rentals. Consider this: The U.S. construction equipment rental market is projected to hit $147.4 billion in 2024, growing at a 6.2% CAGR through 2034. URI is not just keeping pace—it's pulling ahead.

Capital Reinvestment: Fueling Growth with Precision

URI's ROCE advantage is amplified by its relentless reinvestment of capital. Over five years, its capital employed has grown by 44%, driven by acquisitions, fleet upgrades, and strategic market expansions. This isn't just about size—it's about quality:

• Asset Turnover: URI's fleet utilization consistently exceeds 70%, higher than peers, thanks to data-driven demand forecasting and regional hub networks.
• Margin Discipline: While smaller rivals face negative net margins (-8% for some U.S. sole proprietorships), URI's operational leverage maintains high margins even during cyclical dips.

The result? A compounding machine. Every dollar reinvested generates 17% returns, creating a self-sustaining cycle of growth. This is why URI's total shareholder return (TSR) has soared by 414% over five years, outperforming the S&P 500 by a factor of 3.

Sector Tailwinds: A Decade of Tailored Growth

URI's strategy is riding secular trends that will sustain its compounding power:

1. Infrastructure Spending: Governments worldwide are pouring $13 trillion into infrastructure by 2030. URI's construction equipment—cranes, pavers, and generators—is indispensable here.
2. Rental Penetration: Only 30% of equipment demand is met via rentals today. As businesses prioritize flexibility over ownership, URI's scalable model wins.
3. Technological Edge: URI's digital platform, which tracks 4 million equipment transactions annually, reduces downtime and boosts utilization—a moat no competitor can replicate.

Even in a slowing economy, URI thrives. Its recession-resistant model—rentals are cheaper than ownership, and its customer base spans both cyclical (construction) and non-cyclical (industrial) sectors—ensures steady demand.

Valuation: A Discounted Growth Stock

URI's current P/E ratio of 18x is roughly in line with the S&P 500. This is a mistake. The market is ignoring two critical facts:

1. Growth Mispricing: URI's 5-year EPS CAGR of 12% is far above the sector's 5%, yet it trades at a mere 1.2x its growth rate.
2. ROCE Premium: A 17% ROCE stock should command a valuation premium. Instead, it's priced as a “normal” industrial company.

The gap between URI's fundamentals and its valuation is a buying opportunity. At 18x earnings, the stock offers a 5.5% earnings yield—far superior to bonds—and the potential for 10-15% annual EPS growth over the next decade.

Conclusion: This is a Once-in-a-Decade Compounding Play

United Rentals is the rare stock that combines capital efficiency, sector dominance, and structural growth. Its ROCE advantage and reinvestment prowess create a moat that will widen over time, while the market underestimates its staying power in both booms and busts.

For long-term investors, URI isn't just a stock—it's a compounder. The math is clear: 17% ROCE compounding at scale beats passive investments hands down. Act now: this is a generational opportunity.

The question isn't whether to buy URI—it's how much.