Investors will want Vicor’s ROCE growth (NASDAQ: VICR) to persist


What are the early trends we should look for to identify a stock that could multiply in value over the long term? Generally, we will want to notice a growing trend to recover on capital employed (ROCE) and at the same time, a based capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. So when we looked Vicor (NASDAQ: VICR) and its trend of ROCE, we really liked what we saw.

Return on capital employed (ROCE): what is it?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for Vicor:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.14 = US $ 58 million ÷ (US $ 459 million – US $ 43 million) (Based on the last twelve months up to September 2021).

Thereby, Vicor has a ROCE of 14%. On its own, this is standard efficiency, but it is much better than the 9.3% generated by the electrical industry.

See our latest review for Vicor

NasdaqGS: VICR Return on Capital Employee November 22, 2021

Above you can see how Vicor’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Vicor.

The ROCE trend

Vicor recently broke into profitability, so their past investments appear to be paying off. Shareholders will no doubt be delighted because the company was in deficit five years ago but now generates 14% of its capital. Not only that, but the business is using 212% more capital than before, but that’s to be expected from a business trying to make a profit. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it keeps moving forward it can lead to multi-bagger performance.

The bottom line

In short, we are delighted to see that Vicor’s reinvestment activities have paid off and the business is now profitable. And a remarkable 959% total return over the past five years tells us that investors expect more good things to come in the future. In light of this, we think it is worth taking this title further because if Vicor can maintain these trends, he could have a bright future ahead of him.

Vicor does come with some risks though, we have found 3 warning signs in our investment analysis, and 1 of them should not be ignored …

While Vicor doesn’t earn the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.


Comments are closed.