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Amkor Technology (NASDAQ:AMKR) Is Doing The Right Things To Multiply Its Share Price


Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Amkor Technology (NASDAQ:AMKR) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Amkor Technology, this is the formula:

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

0.18 = US$820m ÷ (US$6.4b – US$1.8b) (Based on the trailing twelve months to June 2022).

Thus, Amkor Technology has an ROCE of 18%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Semiconductor industry average of 15%.

roce
NasdaqGS:AMKR Return on Capital Employed October 7th 2022

In the above chart we have measured Amkor Technology’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 report on analyst forecasts for the company.

So How Is Amkor Technology’s ROCE Trending?

Amkor Technology is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 54% more capital is being employed now too. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.

In Conclusion…

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that’s what Amkor Technology has. Since the stock has returned a solid 77% to shareholders over the last five years, it’s fair to say investors are beginning to recognize these changes. In light of that, we think it’s worth looking further into this stock because if Amkor Technology can keep these trends up, it could have a bright future ahead.

While Amkor Technology looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AMKR is currently trading for a fair price.

While Amkor Technology 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.

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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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