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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Lattice Semiconductor (NASDAQ:LSCC) 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 Lattice Semiconductor is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$101m ÷ (US$854m - US$92m) (Based on the trailing twelve months to September 2024).
Thus, Lattice Semiconductor has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Semiconductor industry.
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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Lattice Semiconductor .
What The Trend Of ROCE Can Tell Us
Lattice Semiconductor is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The amount of capital employed has increased too, by 49%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Key Takeaway
To sum it up, Lattice Semiconductor has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 199% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 for LSCC helps visualize whether it is currently trading for a fair price.