If we want to find a stock that can grow over the long term, what underlying trends should we pay attention to? First, we would like to see a proven return return on capital employed (ROCE) which is growing, and secondly, it is expanding Base of capital employed. Simply put, these types of businesses are compounding machines, meaning they are constantly reinvesting their earnings at a higher rate of return. look at BE Semiconductor Industries (AMS:BESI), it has a high ROCE right now, but let’s see how the returns trend.
Understanding Return on Capital Employed (ROCE)
If you haven’t dealt with ROCE before, it measures the ‘return’ (pre-tax profit) generated by a company on the capital it employs in its business. Analysts use this formula to calculate this for BE Semiconductor Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.27 = €196m ÷ (€851m – €135m) (Based on last twelve months till September 2023),
so, BE Semiconductor Industries has a ROCE of 27%. Overall this is a great return and is better than the semiconductor industry average of 17%.
See our latest analysis for BE Semiconductor Industries
ROCE
Above you can see how the current ROCE for BE Semiconductor Industries compares to its past returns on capital, but the past can only tell you so much. If you’re interested, you can check out our analysts’ predictions here Free Report on analyst forecasts for the company.
What can we tell from BE Semiconductor Industries’ ROCE trend?
Things have been fairly stable at BE Semiconductor Industries, its capital employed and returns on that capital have remained somewhat flat over the last five years. This tells us that the company is not reinvesting in itself, so it’s possible that it is past the growth stage. So it may not be a multi-bagger in the making, but considering a good return on capital of 27%, it would be difficult to find fault with the current operations of the business. This probably explains why BE Semiconductor Industries is paying out 83% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for the dividends.
What can we learn from BE Semiconductor Industries’ ROCE
While BE Semiconductor Industries enjoys impressive returns on its capital, it is not growing the amount of capital. Investors should think there are better things to come because the stock has hit it out of the park, giving shareholders a gain of 673% over the last five years. However, until these underlying trends become more positive, our expectations will not be too high.
One more thing: we have identified 3 warning signs BE with semiconductor industries (at least 1 that should not be ignored), and understanding these would certainly be useful.
BE Semiconductor Industries isn’t the only stock earning high returns. If you want to see more, check out our Free List of companies earning high returns on equity with solid fundamentals.
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This article from Simply Wall St is of a general nature. We only provide commentary based on historical data and analyst forecasts using unbiased methodology and our articles are not intended to provide financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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