We think Texas Instruments (NASDAQ:TXN) might have the DNA of a multi-bagger


If you’re looking for a multi-bagger, there are a few things to watch out for. In a perfect world, we would like to see a company invest more capital in their business and ideally the returns from that capital also increase. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. With this in mind, the ROCE of Texas Instruments (NASDAQ:TXN) looks great, so let’s see what the trend can tell us.

Understanding return on capital employed (ROCE)

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. The formula for this calculation on Texas Instruments is:

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

0.46 = $10 billion ÷ ($25 billion – $2.6 billion) (Based on the last twelve months to June 2022).

So, Texas Instruments has a ROCE of 46%. This is a fantastic return and not only that, it exceeds the 15% average earned by companies in a similar industry.

NasdaqGS:TXN Return on Capital Employed August 3, 2022

Above, you can see how Texas Instruments’ current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.

What is the return trend?

The trends we’ve noticed at Texas Instruments are quite reassuring. Data shows that capital returns have increased significantly over the past five years to 46%. The company actually makes more money per dollar of capital used, and it should be noted that the amount of capital has also increased by 52%. So we’re very inspired by what we’re seeing at Texas Instruments with its ability to reinvest capital profitably.

Texas Instruments ROCE Basics

In summary, Texas Instruments has proven that it can reinvest in the business and generate higher returns on that capital employed, which is great. Given that the stock has returned 145% to shareholders over the past five years, it seems investors recognize these changes. So given that the stock has proven to have some promising trends, it’s worth researching the company further to see if those trends are likely to persist.

One last note, you should inquire about the 3 warning signs we have spotted some with Texas Instruments (including 2 that make us uncomfortable) .

Texas Instruments is not the only stock to generate high returns. If you want to see more, check out our free list of companies that deliver high returns on equity with strong fundamentals.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the 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.


Comments are closed.