Why You Should Care About BE Semiconductor Industries' (AMS:BESI) Strong Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. That's why when we briefly looked at BE Semiconductor Industries' (AMS:BESI) ROCE trend, we were very happy with what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for BE Semiconductor Industries, this is the formula:

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

0.31 = €313m ÷ (€1.2b - €165m) (Based on the trailing twelve months to September 2022).

Thus, BE Semiconductor Industries has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 14%.

Our analysis indicates that BESI is potentially undervalued!

Above you can see how the current ROCE for BE Semiconductor Industries 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 BE Semiconductor Industries.

What Can We Tell From BE Semiconductor Industries' ROCE Trend?

It's hard not to be impressed by BE Semiconductor Industries' returns on capital. Over the past five years, ROCE has remained relatively flat at around 31% and the business has deployed 92% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If BE Semiconductor Industries can keep this up, we'd be very optimistic about its future.

The Bottom Line On BE Semiconductor Industries' ROCE

In short, we'd argue BE Semiconductor Industries has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 143% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for BE Semiconductor Industries (of which 2 are significant!) that you should know about.

BE Semiconductor Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.