There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Tokyo Electron (TSE:8035), we 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. To calculate this metric for Tokyo Electron, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.33 = JP¥687b ÷ (JP¥2.7t – JP¥560b) (Based on the trailing twelve months to September 2025).
So, Tokyo Electron has an ROCE of 33%. In absolute terms that’s a great return and it’s even better than the Semiconductor industry average of 11%.
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TSE:8035 Return on Capital Employed January 30th 2026
In the above chart we have measured Tokyo Electron’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 Tokyo Electron for free.
The Trend Of ROCE
We’d be pretty happy with returns on capital like Tokyo Electron. The company has consistently earned 33% for the last five years, and the capital employed within the business has risen 118% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that’s even better. If these trends can continue, it wouldn’t surprise us if the company became a multi-bagger.
What We Can Learn From Tokyo Electron’s ROCE
In summary, we’re delighted to see that Tokyo Electron has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 246% return they’ve received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing to note, we’ve identified 1 warning sign with Tokyo Electron and understanding this should be part of your investment process.
Tokyo Electron is not the only stock earning high returns. If you’d like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
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