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Veeco Instruments (NASDAQ:VECO) Shareholders Will Want The ROCE Trajectory To Continue
AInvestSaturday, Feb 1, 2025 10:19 am ET
5min read
VECO --


As a shareholder of Veeco Instruments (NASDAQ:VECO), you'll want to keep a close eye on the company's return on capital employed (ROCE) trajectory. Veeco's ROCE has been on an upward trend, and understanding the factors driving this improvement can help you make informed investment decisions. In this article, we'll explore Veeco's ROCE evolution, key drivers, and how it compares to its industry peers.



Veeco Instruments' ROCE Evolution

Veeco Instruments' ROCE has seen a significant improvement over the past five years. In 2019, the company had a ROCE of -22.64%, indicating that it was not generating profits from the capital it employed. However, by 2024, Veeco's ROCE had improved to 8.83%, demonstrating a turnaround in profitability. This improvement can be attributed to several factors:

1. Improving profitability: Veeco Instruments has consistently increased its profitability over the past five years. In 2019, the company reported a net income of -$1.66 million, while in 2024, it is expected to report a net income of $1.75 million. This improvement in profitability has contributed to the increase in ROCE.
2. Growing revenue: Veeco Instruments has also experienced significant revenue growth over the past five years. In 2019, the company's revenue was $419.35 million, and it is expected to reach $725.25 million in 2024. This growth in revenue has allowed the company to reinvest in its business and generate higher returns on capital employed.
3. Expanding capital employed: Veeco Instruments has also expanded its capital employed over the past five years. In 2019, the company's capital employed was $357.71 million, and it is expected to reach $1.2 billion in 2024. This expansion in capital employed has allowed the company to invest in new technologies and markets, contributing to its growth in revenue and profitability.
4. Investment in new technologies: Veeco Instruments has invested in new technologies and products to stay competitive in the semiconductor industry. These investments have allowed the company to expand its product offerings and enter new markets, contributing to its growth in revenue and profitability.



Key Drivers of Veeco Instruments' ROCE

The key drivers of Veeco Instruments' ROCE are:

1. Growing Return on Capital Employed (ROCE): Veeco Instruments has shown an increasing trend in its ROCE, which has improved from a low of 8.3% in June 2024 to 8.6% in September 2024. This indicates that the company is generating higher returns on the capital it employs.
2. Expansion in Capital Employed: Veeco Instruments has increased its capital employed by 42% compared to the previous period. This expansion suggests that the company is reinvesting its profits at increasing rates of return, which is a positive sign for future growth.
3. Improving Profitability: Veeco Instruments has turned around from being loss-making five years ago to generating profits. In the most recent quarter, the company reported a net income of $22.0 million, or $0.36 per diluted share, compared with $24.6 million, or $0.42 per diluted share in the same period last year. This improvement in profitability contributes to the company's overall ROCE.
4. Growth in Semiconductor Revenue: Veeco Instruments' Semiconductor business grew 26% year-over-year and 13% sequentially in the third quarter of 2024. This growth is driven by an increase in shipments to leading-edge customers across several product lines, contributing to the company's overall ROCE.

Veeco Instruments' ROCE vs. Industry Peers

Veeco Instruments' Return on Capital Employed (ROCE) of 8.6% is lower than the industry average of 13% for the Semiconductor industry. This indicates that Veeco Instruments is not as efficient as its peers in generating profits from the capital it employs. However, it is important to note that Veeco Instruments has recently broken into profitability, and its ROCE has been improving. Additionally, the company is employing 42% more capital than previously, which suggests that it is reinvesting in its business and looking for opportunities to invest capital internally at ever higher rates. This can indicate that there are plenty of opportunities for Veeco Instruments to invest capital internally and at ever higher rates, which is a common trait of a multi-bagger.



In conclusion, Veeco Instruments' ROCE trajectory over the past five years has been characterized by a significant improvement in profitability, driven by growing revenue and expanding capital employed. The company's investment in new technologies has also contributed to its growth and improved ROCE. While Veeco Instruments' ROCE is lower than the industry average, its recent turnaround and expanding capital employed suggest that the company is well-positioned for future growth. As a shareholder, you'll want to keep a close eye on Veeco Instruments' ROCE trajectory and the factors driving its improvement to make informed investment decisions.
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