If you want to spot potential multibaggers, there are often underlying trends that can provide clues. First, we want to identify that the return on capital employed (ROCE) is increasing, and in parallel, the capital employed base continues to increase. This shows that it is a compounding machine and the earnings can be continuously reinvested into the business to generate higher profits. On that note, Lattice Semiconductor (NASDAQ:LSCC) is looking very promising in terms of return on equity trends.
What is return on capital employed (ROCE)?
For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. Analysts use the following formula to calculate Lattice Semiconductor.
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.13 = US$101m ÷ (US$854m – US$92m) (Based on trailing twelve months to September 2024).
Therefore, Lattice Semiconductor’s ROCE is 13%. While this is a standard return in itself, it is much better than the 8.6% produced by the semiconductor industry.
Check out our latest analysis for Lattice Semiconductor.
In the chart above, we have measured Lattice Semiconductor’s previous ROCE compared to its previous performance, but the future is probably more important. If you’d like, you can check out forecasts from the analysts covering Lattice Semiconductor for free.
What do the ROCE trends for Lattice Semiconductors tell us?
Lattice Semiconductor is showing some positive trends. Data shows that return on equity has increased significantly to 13% over the past five years. Essentially, the business is earning more money per dollar of invested capital, and on top of that, it’s now using 49% more capital. Increasing returns due to increased capital is common for multibaggers, which is why we’re impressed.
What we can learn from Lattice Semiconductor’s ROCE
Overall, it’s great to see Lattice Semiconductor profiting from previous investments and expanding its capital base. And because stocks have performed so well over the past five years, investors are taking these patterns into account. So, given that this stock has proven to have an encouraging trend, it’s worth investigating the company further to see if that trend is likely to persist.
On the other side of ROCE, you need to consider valuation. That’s why our platform includes a free estimate of LSCC’s intrinsic value, and it’s definitely worth checking out.
If you want to find stable companies with strong earnings, check out this free list of companies with strong balance sheets and good return on equity.
New feature: AI stock screener and alerts
Our new AI Stock Screener scans the market for opportunities every day.
• Dividend powerhouse (yield 3% or more)
• Small-cap stocks that are undervalued due to insider purchases.
• High-growth technology and AI companies
Or build your own metrics from over 50 metrics.
Explore for free now
Do you have feedback on this article? Interested in its content? Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
