Some Investors May Be Worried About u-blox Holding's (VTX:UBXN) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 u-blox Holding (VTX:UBXN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for u-blox Holding:

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

0.023 = CHF9.3m ÷ (CHF518m - CHF112m) (Based on the trailing twelve months to December 2020).

Therefore, u-blox Holding has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 5.5%.

Check out our latest analysis for u-blox Holding

Above you can see how the current ROCE for u-blox Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is u-blox Holding's ROCE Trending?

On the surface, the trend of ROCE at u-blox Holding doesn't inspire confidence. Over the last five years, returns on capital have decreased to 2.3% from 16% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On u-blox Holding's ROCE

We're a bit apprehensive about u-blox Holding because despite more capital being deployed in the business, returns on that capital and sales have both fallen. It should come as no surprise then that the stock has fallen 65% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, u-blox Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

While u-blox Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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