Stock Analysis

The Return Trends At Masonite International (NYSE:DOOR) Look Promising

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NYSE:DOOR
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Masonite International (NYSE:DOOR) and its trend of ROCE, we really 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 yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Masonite International is:

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

0.15 = US$280m ÷ (US$2.2b - US$385m) (Based on the trailing twelve months to January 2022).

Therefore, Masonite International has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 13% generated by the Building industry.

View our latest analysis for Masonite International

roce
NYSE:DOOR Return on Capital Employed March 28th 2022

Above you can see how the current ROCE for Masonite International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Masonite International.

How Are Returns Trending?

Masonite International is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 50% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Masonite International has. Since the stock has only returned 15% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to know some of the risks facing Masonite International we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

What are the risks and opportunities for Masonite International?

Masonite International Corporation designs, manufactures, markets, and distributes interior and exterior doors for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets worldwide.

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Rewards

  • Trading at 48.8% below our estimate of its fair value

  • Earnings are forecast to grow 4.54% per year

Risks

  • Debt is not well covered by operating cash flow

  • Significant insider selling over the past 3 months

  • Large one-off items impacting financial results

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About NYSE:DOOR

Masonite International

Masonite International Corporation designs, manufactures, markets, and distributes interior and exterior doors for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets worldwide.

Undervalued with mediocre balance sheet.