Stock Analysis

We Like These Underlying Return On Capital Trends At Amkor Technology (NASDAQ:AMKR)

NasdaqGS:AMKR
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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, Amkor Technology (NASDAQ:AMKR) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Amkor Technology:

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

0.15 = US$756m ÷ (US$6.6b - US$1.5b) (Based on the trailing twelve months to March 2023).

Therefore, Amkor Technology has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Semiconductor industry average of 13%.

See our latest analysis for Amkor Technology

roce
NasdaqGS:AMKR Return on Capital Employed July 31st 2023

In the above chart we have measured Amkor Technology's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Amkor Technology.

What Can We Tell From Amkor Technology's ROCE Trend?

Investors would be pleased with what's happening at Amkor Technology. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 59%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Amkor Technology's ROCE

To sum it up, Amkor Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 231% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Amkor Technology, we've discovered 1 warning sign that you should be aware of.

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

Valuation is complex, but we're helping make it simple.

Find out whether Amkor Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.