We Like These Underlying Return On Capital Trends At Semiconductor Manufacturing International (HKG:981)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, Semiconductor Manufacturing International (HKG:981) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Semiconductor Manufacturing International, this is the formula:

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

0.0032 = US$130m ÷ (US$47b - US$7.0b) (Based on the trailing twelve months to September 2024).

Thus, Semiconductor Manufacturing International has an ROCE of 0.3%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 6.1%.

Check out our latest analysis for Semiconductor Manufacturing International

Above you can see how the current ROCE for Semiconductor Manufacturing International 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 Semiconductor Manufacturing International for free.

So How Is Semiconductor Manufacturing International's ROCE Trending?

Semiconductor Manufacturing International has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 0.3% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Semiconductor Manufacturing International is utilizing 204% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

To the delight of most shareholders, Semiconductor Manufacturing International has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 3 warning signs facing Semiconductor Manufacturing International that you might find interesting.

While Semiconductor Manufacturing International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.