The Returns At Ultra Clean Holdings (NASDAQ:UCTT) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Ultra Clean Holdings (NASDAQ:UCTT), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Ultra Clean Holdings, this is the formula:

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

0.056 = US$88m ÷ (US$1.9b - US$313m) (Based on the trailing twelve months to March 2025).

Therefore, Ultra Clean Holdings has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 8.9%.

View our latest analysis for Ultra Clean Holdings

In the above chart we have measured Ultra Clean Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Ultra Clean Holdings .

What Can We Tell From Ultra Clean Holdings' ROCE Trend?

There are better returns on capital out there than what we're seeing at Ultra Clean Holdings. The company has consistently earned 5.6% for the last five years, and the capital employed within the business has risen 84% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Ultra Clean Holdings' ROCE

In conclusion, Ultra Clean Holdings has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 11% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Like most companies, Ultra Clean Holdings does come with some risks, and we've found 3 warning signs that you should be aware of.

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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.