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Silicon Motion Technology (NASDAQ:SIMO) Could Be Struggling To Allocate Capital

Simply Wall St · 5d ago

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Silicon Motion Technology (NASDAQ:SIMO) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Silicon Motion Technology:

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

0.089 = US$79m ÷ (US$1.1b - US$252m) (Based on the trailing twelve months to September 2025).

So, Silicon Motion Technology has an ROCE of 8.9%. Even though it's in line with the industry average of 8.9%, it's still a low return by itself.

Check out our latest analysis for Silicon Motion Technology

roce
NasdaqGS:SIMO Return on Capital Employed January 7th 2026

Above you can see how the current ROCE for Silicon Motion Technology compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Silicon Motion Technology .

What The Trend Of ROCE Can Tell Us

In terms of Silicon Motion Technology's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 16% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Silicon Motion Technology's ROCE

Bringing it all together, while we're somewhat encouraged by Silicon Motion Technology's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 142% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, Silicon Motion Technology does come with some risks, and we've found 1 warning sign that you should be aware of.

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