Universal Display (NASDAQ:OLED) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Universal Display's (NASDAQ:OLED) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Universal Display is:

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

0.16 = US$236m ÷ (US$1.6b - US$131m) (Based on the trailing twelve months to September 2023).

Therefore, Universal Display has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 11% it's much better.

Check out our latest analysis for Universal Display

Above you can see how the current ROCE for Universal Display compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Universal Display here for free.

So How Is Universal Display's ROCE Trending?

Investors would be pleased with what's happening at Universal Display. 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, 94% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, Universal Display has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 83% return over the last five years. In light of that, we think it's worth looking further into this stock because if Universal Display can keep these trends up, it could have a bright future ahead.

Universal Display does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

While Universal Display 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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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.