Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at MACOM Technology Solutions Holdings (NASDAQ:MTSI) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for MACOM Technology Solutions Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.062 = US$100m ÷ (US$1.9b - US$299m) (Based on the trailing twelve months to April 2025).
So, MACOM Technology Solutions Holdings has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 8.9%.
See our latest analysis for MACOM Technology Solutions Holdings
Above you can see how the current ROCE for MACOM Technology Solutions Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for MACOM Technology Solutions Holdings .
What The Trend Of ROCE Can Tell Us
MACOM Technology Solutions Holdings has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.2% on its capital. Not only that, but the company is utilizing 59% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Key Takeaway
Long story short, we're delighted to see that MACOM Technology Solutions Holdings' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 281% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
While MACOM Technology Solutions Holdings looks impressive, no company is worth an infinite price. The intrinsic value infographic for MTSI helps visualize whether it is currently trading for a fair price.
While MACOM Technology Solutions Holdings 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 here to simplify it.
Discover if MACOM Technology Solutions Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.