Yahoo Finance Returns Are Gaining Momentum At Alpha and Omega Semiconductor (NASDAQ:AOSL)
If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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, we've noticed some promising trends at Alpha and Omega Semiconductor (NASDAQ:AOSL) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Alpha and Omega Semiconductor is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.00036 = US$355k ÷ (US$1.2b - US$160m) (Based on the trailing twelve months to March 2024).
Thus, Alpha and Omega Semiconductor has an ROCE of 0.04%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 9.7%.
View our latest analysis for Alpha and Omega Semiconductor
Above you can see how the current ROCE for Alpha and Omega Semiconductor compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Alpha and Omega Semiconductor for free.
What Does the ROCE Trend For Alpha and Omega Semiconductor Tell Us?
We're delighted to see that Alpha and Omega Semiconductor is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 0.04% on its capital. Not only that, but the company is utilizing 75% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
Our Take On Alpha and Omega Semiconductor's ROCE
Overall, Alpha and Omega Semiconductor gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a separate note, we've found 1 warning sign for Alpha and Omega Semiconductor you'll probably want to know about.
While Alpha and Omega Semiconductor 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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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.
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