Amphenol (NYSE:APH) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, the ROCE of Amphenol (NYSE:APH) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

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 Amphenol, this is the formula:

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

0.19 = US$3.3b ÷ (US$21b - US$4.1b) (Based on the trailing twelve months to December 2024).

So, Amphenol has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 10% generated by the Electronic industry.

See our latest analysis for Amphenol

In the above chart we have measured Amphenol'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 analyst report for Amphenol .

So How Is Amphenol's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 100% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

To sum it up, Amphenol has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 271% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Amphenol could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for APH on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.