If you want to identify the next multi-bagger, there are a few key trends to watch. In particular, there are two things you should look out for. First, return Return on Invested Capital (ROCE) and secondly, the company’s amount More than 100% of invested capital. When you see this, it usually means it's a company with a good business model and plenty of opportunities for profitable reinvestment. Amcor Technology We've taken a look at (NASDAQ:AMKR) and its ROCE trend and really like it.
Understanding Return on Invested Capital (ROCE)
For those unfamiliar with what ROCE is, it measures the amount of pre-tax profit a company is able to generate from the capital employed in its business. The formula for calculating this for Amkor Technology is:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.088 = US$474 million ÷ (US$6.7 billion – US$1.3 billion) (Based on the trailing 12 months ending March 2024).
therefore, Amkor Technology's ROCE is 8.8%. While that's a low return in absolute terms, it's on par with the semiconductor industry average of 9.7%.
Read our latest analysis for Amkor Technology
Above you can see how Amkor Technology's current ROCE compares to its prior returns on capital, but the history can only tell you so much. If you're interested, you can check out analyst forecasts on our free Amkor Technology analyst report.
What does Amkor Technology's ROCE trend indicate?
While the ROCE is not high in absolute terms, it is encouraging that it is moving in the right direction. Looking at the numbers, the return on invested capital has increased significantly by 8.8% over the past five years. Essentially, the earnings per dollar of invested capital have increased, and on top of that, the capital currently deployed has also increased by 59%. This indicates that there is ample opportunity to invest capital internally and at even higher rates, a combination that is common in multi-baggers.
Relatedly, the company's current liabilities to total assets ratio has decreased to 19%, which essentially translates into reduced funding from short-term creditors, suppliers, etc. So, this improvement in ROCE has come from the underlying economics of the business, which is great to see.
What we can learn from Amkor Technology's ROCE
In summary, Amkor Technology has proven it can reinvest in its business and generate higher returns on invested capital, which is great to see. Investors seem to be aware of this change, as the company's stock has returned an impressive 428% to shareholders over the past five years. That said, we still believe the company's fundamentals are encouraging and therefore worth further due diligence.
Another thing to note is that Two Warning Signs Working with Amkor Technology to understand these should be part of your investment process.
While Amkor Technology isn't currently earning the highest return on equity, we've compiled a list of companies currently earning a return on equity of over 25%. Check it out here free I'll list them here.
Have feedback about this article? Concerns about the content? contact Please contact us directly. Or email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
