Why We Like The Returns At Axcelis Technologies (NASDAQ:ACLS)
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Axcelis Technologies (NASDAQ:ACLS) we really liked what we saw.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Axcelis Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.27 = US$266m ÷ (US$1.3b - US$285m) (Based on the trailing twelve months to December 2023).
So, Axcelis Technologies has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Semiconductor industry average of 11%.
Check out our latest analysis for Axcelis Technologies
In the above chart we have measured Axcelis Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Axcelis Technologies for free.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from Axcelis Technologies. The data shows that returns on capital have increased substantially over the last five years to 27%. The amount of capital employed has increased too, by 115%. So we're very much inspired by what we're seeing at Axcelis Technologies thanks to its ability to profitably reinvest capital.
What We Can Learn From Axcelis Technologies' ROCE
In summary, it's great to see that Axcelis Technologies can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 419% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Axcelis Technologies can keep these trends up, it could have a bright future ahead.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for ACLS that compares the share price and estimated value.
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.
