Returns At Veeco Instruments (NASDAQ:VECO) Are On The Way Up
What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Veeco Instruments' (NASDAQ:VECO) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Veeco Instruments:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = US$61m ÷ (US$1.1b - US$258m) (Based on the trailing twelve months to December 2022).
So, Veeco Instruments has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 14%.
Check out our latest analysis for Veeco Instruments
In the above chart we have measured Veeco Instruments' 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 Veeco Instruments.
What Can We Tell From Veeco Instruments' ROCE Trend?
Like most people, we're pleased that Veeco Instruments is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 7.0% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 25%. Veeco Instruments could be selling under-performing assets since the ROCE is improving.
The Key Takeaway
From what we've seen above, Veeco Instruments has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 27% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
On a final note, we found 2 warning signs for Veeco Instruments (1 is a bit concerning) you should be aware of.
While Veeco Instruments isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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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