Yahoo Finance Shareholders Would Enjoy A Repeat Of Lattice Semiconductor's (NASDAQ:LSCC) Recent Growth In Returns
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Lattice Semiconductor's (NASDAQ:LSCC) look very promising so lets take 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. To calculate this metric for Lattice Semiconductor, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = US$190m ÷ (US$799m - US$127m) (Based on the trailing twelve months to December 2022).
Thus, Lattice Semiconductor has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 15%.
See our latest analysis for Lattice Semiconductor
In the above chart we have measured Lattice Semiconductor's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Lattice Semiconductor's ROCE Trend?
The fact that Lattice Semiconductor is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 28% which is a sight for sore eyes. In addition to that, Lattice Semiconductor is employing 21% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line On Lattice Semiconductor's ROCE
To the delight of most shareholders, Lattice Semiconductor has now broken into profitability. Since the stock has returned a staggering 1,244% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
While Lattice Semiconductor looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether LSCC is currently trading for a fair price.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
