If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at MACOM Technology Solutions Holdings (NASDAQ:MTSI) and its trend of ROCE, we really liked what we saw.

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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. The formula for this calculation on MACOM Technology Solutions Holdings is:

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

0.051 = US$81m ÷ (US$1.8b - US$272m) (Based on the trailing twelve months to January 2025).

Therefore, MACOM Technology Solutions Holdings has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 7.2%.

Check out our latest analysis for MACOM Technology Solutions Holdings

In the above chart we have measured MACOM Technology Solutions Holdings' 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 MACOM Technology Solutions Holdings .

What Can We Tell From MACOM Technology Solutions Holdings' ROCE Trend?

MACOM Technology Solutions Holdings has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, MACOM Technology Solutions Holdings is utilizing 51% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

Long story short, we're delighted to see that MACOM Technology Solutions Holdings' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 280% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if MACOM Technology Solutions Holdings can keep these trends up, it could have a bright future ahead.

If you want to continue researching MACOM Technology Solutions Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.