Returns Are Gaining Momentum At Fabrinet (NYSE:FN)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Fabrinet's (NYSE:FN) returns on capital, so let's have a look.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Fabrinet is:

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

0.16 = US$343m ÷ (US$3.0b - US$906m) (Based on the trailing twelve months to September 2025).

Therefore, Fabrinet has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.2% it's much better.

Check out our latest analysis for Fabrinet

Above you can see how the current ROCE for Fabrinet compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Fabrinet .

How Are Returns Trending?

We like the trends that we're seeing from Fabrinet. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 97%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Fabrinet's ROCE

To sum it up, Fabrinet has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 444% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Fabrinet and understanding this should be part of your investment process.

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.