If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Vicor (NASDAQ:VICR) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for Vicor:

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

0.03 = US$17m ÷ (US$633m - US$70m) (Based on the trailing twelve months to September 2024).

So, Vicor has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 11%.

Check out our latest analysis for Vicor

In the above chart we have measured Vicor'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 analyst report for Vicor .

The Trend Of ROCE

In terms of Vicor's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.7% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

In summary, we're somewhat concerned by Vicor's diminishing returns on increasing amounts of capital. Investors must expect better things on the horizon though because the stock has risen 3.8% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Vicor does have some risks though, and we've spotted 3 warning signs for Vicor that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.