Stock Analysis

There's Been No Shortage Of Growth Recently For DoubleVerify Holdings' (NYSE:DV) Returns On Capital

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, DoubleVerify Holdings (NYSE:DV) looks quite promising in regards to its trends of return on capital.

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)

0.075 = US$87m ÷ (US$1.2b - US$84m) (Based on the trailing twelve months to December 2023).

So, DoubleVerify Holdings has an ROCE of 7.5%. In absolute terms, that's a low return but it's around the Software industry average of 7.2%.

Check out our latest analysis for DoubleVerify Holdings

NYSE:DV Return on Capital Employed April 15th 2024

In the above chart we have measured DoubleVerify Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for DoubleVerify Holdings .

What Does the ROCE Trend For DoubleVerify Holdings Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 7.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 200% 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.

The Bottom Line

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. Investors may not be impressed by the favorable underlying trends yet because over the last year the stock has only returned 5.9% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing, we've spotted 1 warning sign facing DoubleVerify Holdings that you might find interesting.

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.

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.