Amtech Systems (NASDAQ:ASYS) Has Some Difficulty Using Its Capital Effectively
Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at Amtech Systems (NASDAQ:ASYS), we've spotted some signs that it could be struggling, so let's investigate.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for Amtech Systems:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0085 = US$1.0m ÷ (US$146m - US$27m) (Based on the trailing twelve months to June 2023).
Therefore, Amtech Systems has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 12%.
View our latest analysis for Amtech Systems
In the above chart we have measured Amtech Systems' 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 report for Amtech Systems.
What The Trend Of ROCE Can Tell Us
We are a bit worried about the trend of returns on capital at Amtech Systems. Unfortunately the returns on capital have diminished from the 13% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Amtech Systems to turn into a multi-bagger.
What We Can Learn From Amtech Systems' ROCE
In summary, it's unfortunate that Amtech Systems is generating lower returns from the same amount of capital. Yet despite these concerning fundamentals, the stock has performed strongly with a 63% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.
One more thing, we've spotted 3 warning signs facing Amtech Systems that you might find interesting.
While Amtech Systems 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.
