Does the recent performance of Dover Corporation (NYSE: DOV) stock reflect its financial health?
Most readers already know that Dover (NYSE: DOV) stock rose 4.3% in the past month. Given that the market rewards strong, long-term financials, we wonder if this is the case in this case. In particular, we will pay particular attention to the ROE of Dover today.
Return on equity or ROE is a test of how effectively a company increases its value and manages investor money. In short, the ROE shows the profit that each dollar generates compared to the investments of its shareholders.
See our latest review for Dover
How to calculate return on equity?
The formula for ROE is:
Return on equity = Net income (from continuing operations) Ã· Equity
So, based on the above formula, the ROE for Dover is:
24% = US $ 943 million Ã· US $ 3.9 billion (based on the last twelve months to September 2021).
The “return” is the profit of the last twelve months. This therefore means that for every $ 1 invested by its shareholder, the company generates a profit of $ 0.24.
What does ROE have to do with profit growth?
So far, we’ve learned that ROE measures how efficiently a business generates profits. Based on the portion of its profits that the company chooses to reinvest or “keep”, we are then able to assess a company’s future ability to generate profits. Assuming everything else is equal, companies that have both a higher return on equity and higher profit retention are generally those that have a higher growth rate than companies that do not have the same characteristics.
A side-by-side comparison of Dover’s 24% profit growth and ROE
For starters, Dover has a pretty high ROE, which is interesting. Second, even compared to the industry average of 13%, the company’s ROE is quite impressive. It is probably because of this that Dover has been able to record a decent growth in net income of 7.7% over the past five years.
In the next step, we compared Dover’s net income growth with the industry and found that the company has a similar growth figure compared to the industry average growth rate of 8.5% at during the same period.
Profit growth is a huge factor in the valuation of stocks. The investor should try to establish whether the expected growth or decline in earnings, as the case may be, is taken into account. This will help him determine if the future of the stock looks bright or worrisome. Has the market assessed DOV’s future prospects? You can find out in our latest Intrinsic Value infographic research report.
Is Dover Efficiently Using Its Retained Earnings?
With a three-year median payout rate of 42% (implying that the company keeps 58% of its profits), it appears that Dover is reinvesting effectively so as to see respectable profit growth and pay a good dividend. covered. .
In addition, Dover is committed to continuing to share its profits with its shareholders, which we can deduce from its long history of paying dividends for at least ten years. Our latest analyst data shows that the company’s future payout ratio is expected to drop to 29% over the next three years. Despite the lower expected payout ratio, the company’s ROE is not expected to change much.
Overall, we think Dover’s performance has been quite good. In particular, it is great to see that the company is investing heavily in its business and with a high rate of return, which has resulted in significant growth in its profits. We also looked at the latest analysts’ forecast and found that the company’s profit growth is expected to be similar to its current growth rate. To learn more about the company’s future earnings growth forecast, take a look at this free analyst forecast report for the company to learn more.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.