What Can The Trends At SEMITEC (TYO:6626) Tell Us About Their Returns?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, SEMITEC (TYO:6626) looks quite promising in regards to its trends of return on capital.

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 SEMITEC:

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

0.14 = JP¥1.7b ÷ (JP¥18b - JP¥5.3b) (Based on the trailing twelve months to September 2020).

Thus, SEMITEC has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 7.1% it's much better.

Check out our latest analysis for SEMITEC

Above you can see how the current ROCE for SEMITEC 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 SEMITEC.

The Trend Of ROCE

The trends we've noticed at SEMITEC are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 35% more capital is being employed now too. So we're very much inspired by what we're seeing at SEMITEC thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that SEMITEC can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 344% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching SEMITEC, you might be interested to know about the 1 warning sign that our analysis has discovered.

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

When trading SEMITEC or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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