The Trends At Xilinx (NASDAQ:XLNX) That You Should Know About

Simply Wall St
·3 min read

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Although, when we looked at Xilinx (NASDAQ:XLNX), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 Xilinx is:

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

0.17 = US$749m ÷ (US$5.4b - US$1.0b) (Based on the trailing twelve months to June 2020).

Therefore, Xilinx has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Semiconductor industry.

View our latest analysis for Xilinx

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In the above chart we have measured Xilinx's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Xilinx here for free.

The Trend Of ROCE

Over the past five years, Xilinx's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Xilinx to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Xilinx has been paying out a decent 42% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

The Key Takeaway

In a nutshell, Xilinx has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 159% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Xilinx, you might be interested to know about the 2 warning signs 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.

This article by Simply Wall St is general in nature. 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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