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JP Morgan: High ROCE EMS Firms May Command Premium Valuations
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News18•28-09-2026, 14:15
JP Morgan: High ROCE EMS Firms May Command Premium Valuations
- •JP Morgan suggests investors will increasingly prioritize Return on Capital Employed (ROCE) over just earnings growth when valuing Electronics Manufacturing Services (EMS) companies.
- •Firms with similar earnings growth but higher ROCE are expected to achieve premium valuations due to better returns on deployed capital.
- •The report highlights that the capital-intensive and high net working capital (NWC) nature of EMS businesses makes ROCE a critical factor in valuation multiples.
- •Investors are likely to focus more on ROCE if earnings miss expectations, growth slows, or high working capital impacts free cash flows.
- •Concerns are raised as some EMS stocks trade at significant P/E premiums despite similar earnings growth and lower ROCE, partly driven by semiconductor-related interest.
Key Questions Answered
According to a JP Morgan report, companies with higher return on capital employed generate better returns on the deployed capital, leading investors to value them more highly when earnings growth moderates or working-capital requirements remain elevated.
JP Morgan notes that the market will likely shift focus to ROCEs if companies miss their earnings expectations, if overall growth slows down, or if net working capital remains high, which negatively impacts free cash flows.
Some EMS stocks have rallied sharply over the past one-and-a-half months, partly supported by new orders from US clients in semiconductor equipment manufacturing and growing investor interest in semiconductor-related opportunities.
