Stock Analysis

Returns Are Gaining Momentum At Alpha and Omega Semiconductor (NASDAQ:AOSL)

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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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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, Alpha and Omega Semiconductor (NASDAQ:AOSL) 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. The formula for this calculation on Alpha and Omega Semiconductor is:

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

0.093 = US$64m ÷ (US$919m - US$233m) (Based on the trailing twelve months to June 2021).

Thus, Alpha and Omega Semiconductor has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 13%.

View our latest analysis for Alpha and Omega Semiconductor

NasdaqGS:AOSL Return on Capital Employed August 26th 2021

In the above chart we have measured Alpha and Omega Semiconductor'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 Alpha and Omega Semiconductor.

What Can We Tell From Alpha and Omega Semiconductor's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 9.3%. The amount of capital employed has increased too, by 175%. 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.

The Key Takeaway

All in all, it's terrific to see that Alpha and Omega Semiconductor is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 29% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

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

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

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What are the risks and opportunities for Alpha and Omega Semiconductor?

Alpha and Omega Semiconductor Limited designs, develops, and supplies power semiconductor products for computing, consumer electronics, communication, and industrial applications in Hong Kong, China, South Korea, the United States, and internationally.

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  • Price-To-Earnings ratio (2.2x) is below the US market (15.6x)

  • Earnings grew by 533.3% over the past year


  • Earnings are forecast to decline by an average of 81.7% per year for the next 3 years

  • High level of non-cash earnings

  • Shareholders have been diluted in the past year

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