Investors Will Want AIXTRON's (ETR:AIXA) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, AIXTRON (ETR:AIXA) looks quite promising in regards to its trends of return on capital.

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 AIXTRON is:

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

0.18 = €109m ÷ (€816m - €192m) (Based on the trailing twelve months to September 2022).

Thus, AIXTRON has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Semiconductor industry average of 15%.

View our latest analysis for AIXTRON

Above you can see how the current ROCE for AIXTRON compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AIXTRON.

What Does the ROCE Trend For AIXTRON Tell Us?

AIXTRON is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 18%. The amount of capital employed has increased too, by 81%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

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 AIXTRON has. Since the stock has returned a staggering 120% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with AIXTRON and understanding it should be part of your investment process.

While AIXTRON 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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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.