DoubleVerify Holdings (NYSE:DV) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Having said that, from a first glance at DoubleVerify Holdings (NYSE:DV) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for DoubleVerify Holdings, this is the formula:

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

0.063 = US$75m ÷ (US$1.3b - US$80m) (Based on the trailing twelve months to June 2024).

Thus, DoubleVerify Holdings has an ROCE of 6.3%. In absolute terms, that's a low return and it also under-performs the Software industry average of 8.5%.

See our latest analysis for DoubleVerify Holdings

Above you can see how the current ROCE for DoubleVerify Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for DoubleVerify Holdings .

So How Is DoubleVerify Holdings' ROCE Trending?

The returns on capital haven't changed much for DoubleVerify Holdings in recent years. The company has employed 191% more capital in the last five years, and the returns on that capital have remained stable at 6.3%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From DoubleVerify Holdings' ROCE

In summary, DoubleVerify Holdings has simply been reinvesting capital and generating the same low rate of return as before. And in the last three years, the stock has given away 48% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you're still interested in DoubleVerify Holdings it's worth checking out our FREE intrinsic value approximation for DV to see if it's trading at an attractive price in other respects.

While DoubleVerify Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.