If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we’re seeing at BE Semiconductor Industries’ (AMS:BESI) look very promising so lets take a look.
Understanding Return On Capital Employed (ROCE)
For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for BE Semiconductor Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.29 = €238m ÷ (€985m – €179m) (Based on the trailing twelve months to June 2021).
So, BE Semiconductor Industries has an ROCE of 29%. That’s a fantastic return and not only that, it outpaces the average of 7.4% earned by companies in a similar industry.
In the above chart we have measured BE Semiconductor Industries’ prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From BE Semiconductor Industries’ ROCE Trend?
Investors would be pleased with what’s happening at BE Semiconductor Industries. Over the last five years, returns on capital employed have risen substantially to 29%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 132%. So we’re very much inspired by what we’re seeing at BE Semiconductor Industries thanks to its ability to profitably reinvest capital.
What We Can Learn From BE Semiconductor Industries’ ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that’s what BE Semiconductor Industries has. Since the stock has returned a staggering 623% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it’s worth looking further into this stock because if BE Semiconductor Industries can keep these trends up, it could have a bright future ahead.
BE Semiconductor Industries does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those is concerning…
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
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