Growth might be the lifeblood of a business, but it isn't always the best or most sustainable way to create value for shareholders. Return on invested capital (ROIC) is often just as important—and occasionally even more so—as a measure of value creation and can be easier to sustain at a high level.

When a company's ROIC is already high, growth typically generates additional value. But if a company's ROIC is low, executives can create more value by boosting ROIC than by pursuing growth (Exhibit 1). A close look at companies with high price-to-earnings multiples shows that many have extraordinary returns on capital but limited growth. This scrutiny suggests that, contrary to conventional wisdom, investors recognize (and will pay more for) the anticipated returns of companies with a strong ROIC, despite their limited growth prospects. This observation doesn't mean that growth is undesirable; unless companies keep up with their industries, they will likely destroy value. But they shouldn't pursue growth heroically at the expense of improvements in ROIC.

After identifying the largest publicly listed companies in the United States (by revenues) in 1965, 1975, 1985, and 1995,...