Yahoo Finance Returns On Capital At Skyworks Solutions (NASDAQ:SWKS) Paint A Concerning Picture
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at Skyworks Solutions (NASDAQ:SWKS) and its ROCE trend, we weren't exactly thrilled.
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 Skyworks Solutions, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = US$953m ÷ (US$8.3b - US$606m) (Based on the trailing twelve months to March 2024).
So, Skyworks Solutions has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 9.7% it's much better.
View our latest analysis for Skyworks Solutions
Above you can see how the current ROCE for Skyworks Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Skyworks Solutions .
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Skyworks Solutions doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 27% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
In Conclusion...
From the above analysis, we find it rather worrisome that returns on capital and sales for Skyworks Solutions have fallen, meanwhile the business is employing more capital than it was five years ago. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 47% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.
Skyworks Solutions could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for SWKS on our platform quite valuable.
While Skyworks Solutions 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.
