Stock Analysis

Micron Technology (NASDAQ:MU) Might Have The Makings Of A Multi-Bagger

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NasdaqGS:MU
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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Micron Technology (NASDAQ:MU) and its trend of ROCE, we really liked what we saw.

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 Micron Technology:

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

0.16 = US$8.6b ÷ (US$61b - US$6.5b) (Based on the trailing twelve months to December 2021).

Thus, Micron Technology has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 15% generated by the Semiconductor industry.

Check out our latest analysis for Micron Technology

roce
NasdaqGS:MU Return on Capital Employed January 2nd 2022

In the above chart we have measured Micron 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 Micron Technology.

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

We like the trends that we're seeing from Micron Technology. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 145% more capital is being employed now too. So we're very much inspired by what we're seeing at Micron Technology thanks to its ability to profitably reinvest capital.

What We Can Learn From Micron Technology's ROCE

To sum it up, Micron Technology has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 324% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Micron Technology that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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Find out whether Micron 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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