Stock Analysis

There's Been No Shortage Of Growth Recently For Masonite International's (NYSE:DOOR) Returns On Capital

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NYSE:DOOR
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 on that note, Masonite International (NYSE:DOOR) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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$287m ÷ (US$2.3b - US$353m) (Based on the trailing twelve months to October 2021).

Therefore, Masonite International has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 14%.

Check out our latest analysis for Masonite International

roce
NYSE:DOOR Return on Capital Employed December 19th 2021

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, you can check out the forecasts from the analysts covering Masonite International here for free.

The Trend Of ROCE

The trends we've noticed at Masonite International are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 52% more capital is being employed now too. So we're very much inspired by what we're seeing at Masonite International thanks to its ability to profitably reinvest capital.

What We Can Learn From Masonite International's ROCE

In summary, it's great to see that Masonite International can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 74% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Masonite International that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.