If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Intel (NASDAQ:INTC), it didn’t seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Intel:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.0043 = US$714m ÷ (US$193b – US$27b) (Based on the trailing twelve months to March 2024).
Therefore, Intel has an ROCE of 0.4%. Ultimately, that’s a low return and it under-performs the Semiconductor industry average of 9.7%.
View our latest analysis for Intel
In the above chart we have measured Intel’s 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 Intel for free.
What Can We Tell From Intel’s ROCE Trend?
When we looked at the ROCE trend at Intel, we didn’t gain much confidence. Around five years ago the returns on capital were 21%, but since then they’ve fallen to 0.4%. Meanwhile, the business is utilizing more capital but this hasn’t moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It’s worth keeping an eye on the company’s earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On Intel’s ROCE
Bringing it all together, while we’re somewhat encouraged by Intel’s reinvestment in its own business, we’re aware that returns are shrinking. Since the stock has declined 22% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn’t have these traits of a multi-bagger discussed above, so if that’s what you’re looking for, we think you’d have more luck elsewhere.
On a final note, we’ve found 1 warning sign for Intel that we think you should be aware of.
While Intel 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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