Capital Allocation Trends At ams-OSRAM (VTX:AMS) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at ams-OSRAM (VTX:AMS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on ams-OSRAM is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.035 = €147m ÷ (€6.2b - €2.0b) (Based on the trailing twelve months to March 2025).

Therefore, ams-OSRAM has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 13%.

Check out our latest analysis for ams-OSRAM

Above you can see how the current ROCE for ams-OSRAM compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ams-OSRAM for free.

The Trend Of ROCE

In terms of ams-OSRAM's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 11%, but since then they've fallen to 3.5%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From ams-OSRAM's ROCE

To conclude, we've found that ams-OSRAM is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 90% over the last five years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think ams-OSRAM has the makings of a multi-bagger.

On a separate note, we've found 1 warning sign for ams-OSRAM you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.