Investors Could Be Concerned With Intel’s (NASDAQ:INTC) Returns On Capital

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Investors Could Be Concerned With Intel’s (NASDAQ:INTC) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we’d want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Intel (NASDAQ:INTC) we aren’t jumping out of our chairs at how returns are trending, but let’s have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Intel is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.0029 = US$509m ÷ (US$206b – US$32b) (Based on the trailing twelve months to June 2024).

Thus, Intel has an ROCE of 0.3%. Ultimately, that’s a low return and it under-performs the Semiconductor industry average of 9.0%.

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roce

In the above chart we have measured Intel’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free

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What Does the ROCE Trend For Intel Tell Us?

When we looked at the ROCE trend at Intel, we didn’t gain much confidence. Around five years ago the returns on capital were 20%, but since then they’ve fallen to 0.3%. 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.

The Bottom Line On Intel’s ROCE

In summary, Intel is reinvesting funds back into the business for growth but unfortunately it looks like sales haven’t increased much just yet. And in the last five years, the stock has given away 47% so the market doesn’t look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don’t think Intel has the makings of a multi-bagger.

Intel does have some risks though, and we’ve spotted

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that you might be interested in.

If you want to search for solid companies with great earnings, check out this free

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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.

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#Investors #Concerned #Intels #NASDAQINTC #Returns #Capital

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