Investors may be concerned about u-blox Holding’s returns on capital (VTX: UBXN)
Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we take a look at a few key financial metrics. First, we will want to see a to return to on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Ultimately, this demonstrates that this is a company that reinvests its profits at increasing rates of return. In light of this, when we looked at u-blox Holding (VTX: UBXN) and its ROCE trend, we weren’t exactly thrilled.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. Analysts use this formula to calculate it for u-blox Holding:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.016 = CHF 6.6 million Ã· (CHF 502 million – CHF 84 million) (Based on the last twelve months up to June 2021).
Therefore, u-blox Holding has a ROCE of 1.6%. In absolute terms, this is low efficiency and it is also lower than the semiconductor industry average of 9.7%.
Check out our latest review for u-blox Holding
In the graph above, we measured u-blox Holding’s past ROCE against its past performance, but arguably the future is more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for u-blox Holding.
What is the trend for returns?
On the surface, the ROCE trend at u-blox Holding does not inspire confidence. About five years ago, returns on capital were 17%, but since then they have fallen to 1.6%. Meanwhile, the company is using more capital, but it hasn’t changed much in terms of sales over the past 12 months, so it might reflect longer-term investments. It may take some time for the business to begin to see a change in the benefits of these investments.
The basics of u-blox Holding’s ROCE
To conclude, we have seen that u-blox Holding is reinvesting in the business, but the returns are declining. Given that the stock has fallen 60% over the past five years, investors may not be overly optimistic that this trend will improve either. Therefore, based on the analysis done in this article, we don’t think u-blox Holding has the makings of a multi-bagger.
If you are still interested in u-blox Holding, it is worth checking out our FREE approximation of intrinsic value to see if it trades attractively in other respects.
Although u-blox Holding does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.
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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 any stock 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 material. Simply Wall St has no position in any of the stocks mentioned.
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