Dover (NYSE:DOV) has more to do to multiply its value in the future

Did you know that there are some financial metrics that can give clues about a potential multibagger? In a perfect world, we would like to see a company investing more capital into its business and, ideally, the returns generated from that capital also increase. This tells us that it is a compound interest machine that is able to continually reinvest its profits back into the business and generate higher returns. That is why we have taken a quick look Dover’s (NYSE:DOV) ROCE trend, we were pretty pleased with what we saw.

Return on Capital Employed (ROCE): What is it?

If you’ve never worked with ROCE before, it measures the “return” (earnings before taxes) a company earns on the capital employed in its business. Analysts use this formula to calculate it for Dover:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.16 = $1.4 billion ÷ ($12 billion – $3.0 billion) (Based on the last twelve months to March 2024).

So, Dover has a ROCE of 16%. This is a normal return in itself, but it is significantly better than the 13% generated by the mechanical engineering sector.

Check out our latest analysis for Dover

Above you can see how the current ROCE for Dover compares to previous returns on capital, but there is only so much that can be said from the past. If you are interested, you can see analyst forecasts in our free Analyst report for Dover.

The trend of ROCE

While current returns on capital are decent, they haven’t changed much. The company has deployed 34% more capital over the past five years and the return on capital has remained stable at 16%. However, since 16% is a moderate return on capital, it’s good to see a company that can continue to reinvest at these decent rates. Over long periods of time, such returns may not be too exciting, but with consistency, they can pay off in terms of share price returns.

The most important things to take away

In summary, Dover has simply reinvested capital steadily and with decent returns. And since the stock has risen sharply over the past five years, the market seems to be expecting this trend to continue. While the positive underlying trends can be attributed to investors, we still think this stock is worth investigating further.

However, Dover poses some risks, 3 warning signals in our investment analysis, and 1 of them makes us a little uncomfortable…

For those who like to invest in solid companies, look at that free List of companies with solid balance sheets and high returns on equity.

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