Stock Analysis

DoubleVerify Holdings (NYSE:DV) Is Looking To Continue Growing Its Returns On Capital

NYSE:DV
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To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at DoubleVerify Holdings (NYSE:DV) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on DoubleVerify Holdings is:

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

0.061 = US$59m ÷ (US$1.0b - US$69m) (Based on the trailing twelve months to December 2022).

Therefore, DoubleVerify Holdings has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Software industry average of 9.5%.

Check out our latest analysis for DoubleVerify Holdings

roce
NYSE:DV Return on Capital Employed March 27th 2023

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'd like to see what analysts are forecasting going forward, you should check out our free report for DoubleVerify Holdings.

What Can We Tell From DoubleVerify Holdings' ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last four years, returns on capital employed have risen substantially to 6.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 151% more capital is being employed now too. So we're very much inspired by what we're seeing at DoubleVerify Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From DoubleVerify Holdings' ROCE

To sum it up, DoubleVerify Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 18% to shareholders over the last year, 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.

Like most companies, DoubleVerify Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While DoubleVerify Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether DoubleVerify Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.