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Richardson Electronics (NASDAQ:RELL) Might Have The Makings Of A Multi-Bagger
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Richardson Electronics' (NASDAQ:RELL) returns on capital, so let's have a look.
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 Richardson Electronics:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.017 = US$2.7m ÷ (US$202m - US$41m) (Based on the trailing twelve months to November 2025).
So, Richardson Electronics has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 9.1%.
See our latest analysis for Richardson Electronics
Above you can see how the current ROCE for Richardson Electronics 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 Richardson Electronics .
What Can We Tell From Richardson Electronics' ROCE Trend?
Richardson Electronics has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.7% which is a sight for sore eyes. In addition to that, Richardson Electronics is employing 31% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line On Richardson Electronics' ROCE
To the delight of most shareholders, Richardson Electronics has now broken into profitability. And a remarkable 120% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On a final note, we found 2 warning signs for Richardson Electronics (1 makes us a bit uncomfortable) you should be aware of.
While Richardson Electronics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About NasdaqGS:RELL
Richardson Electronics
Provides engineered solutions, power grid and microwave tube, and related consumables in North America, the Asia Pacific, Europe, and Latin America.
Flawless balance sheet and good value.
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