Shareholders are optimistic that NVR (NYSE:NVR) will multiply in value

If you are not sure where to start when looking for the next multi-bagger, there are some key trends to look out for. Among other things, we want to see two things: First, a growing to return on capital employed (ROCE) and secondly an expansion of the Crowd of the capital employed. Ultimately, this shows that this is a company that reinvests profits with increasing returns. Ergo, when we looked at the ROCE trends at NVR (NYSE:NVR), we liked what we saw.

What is return on capital employed (ROCE)?

For those who don’t know, ROCE is a measure of a company’s annual profit before tax (its return) relative to the capital employed in the company. The formula for this NVR calculation is:

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

0.35 = $2.0 billion ÷ ($6.5 billion – $813 million) (Based on the last twelve months to March 2024).

Therefore, NVR has a ROCE of 35%. That’s a fantastic return, and not only that, it also exceeds the 15% average earned by companies in a similar industry.

Check out our latest analysis for NVR

Above you can see how the current ROCE for NVR compares to previous returns on capital, but there is only so much to be inferred from the past. If you want, you can see the forecasts of the analysts who are covering NVR for free.

How are returns developing?

NVR deserves praise for its returns. The company has deployed 112% more capital over the past five years and the return on that capital has remained stable at 35%. Considering that ROCE is an attractive 35%, this combination is actually quite attractive because it means the company can deploy its money consistently and generate those high returns. This is what you see when you look at well-run companies or cheap business models.

What we can learn from NVR’s ROCE

Ultimately, the company has proven that it can reinvest its capital at high rates of return, which, as you’ll recall, is a characteristic of a multibagger. And the stock has performed incredibly well, with a 125% return over the past five years, so long-term investors are no doubt excited by this outcome. So, while the stock might be “more expensive” than before, we think the strong fundamentals warrant further investigation into this stock.

However, NVR brings with it some risks, 2 warning signals in our investment analysis, and 1 of them is significant…

NVR is not the only stock that offers high returns. To learn more, visit our free List of companies with high returns on equity and solid fundamentals.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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