Latest news with #DomanBuildingMaterialsGroup
Yahoo
02-08-2025
- Business
- Yahoo
Returns Are Gaining Momentum At Doman Building Materials Group (TSE:DBM)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Doman Building Materials Group (TSE:DBM) and its trend of ROCE, we really liked what we saw. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. 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 Doman Building Materials Group is: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.069 = CA$136m ÷ (CA$2.2b - CA$233m) (Based on the trailing twelve months to March 2025). Therefore, Doman Building Materials Group has an ROCE of 6.9%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 10%. Check out our latest analysis for Doman Building Materials Group In the above chart we have measured Doman Building Materials Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Doman Building Materials Group for free. What Can We Tell From Doman Building Materials Group's ROCE Trend? Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 6.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 130% more capital is being employed now too. So we're very much inspired by what we're seeing at Doman Building Materials Group thanks to its ability to profitably reinvest capital. Our Take On Doman Building Materials Group's ROCE In summary, it's great to see that Doman Building Materials Group 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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 87% return over the last five years. In light of that, we think it's worth looking further into this stock because if Doman Building Materials Group can keep these trends up, it could have a bright future ahead. Doman Building Materials Group does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored... While Doman Building Materials Group 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. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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.
Yahoo
27-05-2025
- Business
- Yahoo
Is Doman Building Materials Group Ltd. (TSE:DBM) Trading At A 36% Discount?
Doman Building Materials Group's estimated fair value is CA$13.10 based on 2 Stage Free Cash Flow to Equity Doman Building Materials Group is estimated to be 36% undervalued based on current share price of CA$8.32 The CA$9.71 analyst price target for DBM is 26% less than our estimate of fair value How far off is Doman Building Materials Group Ltd. (TSE:DBM) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (CA$, Millions) CA$106.2m CA$104.9m CA$104.8m CA$105.5m CA$106.8m CA$108.5m CA$110.5m CA$112.8m CA$115.3m CA$117.9m Growth Rate Estimate Source Analyst x5 Analyst x5 Est @ -0.08% Est @ 0.69% Est @ 1.23% Est @ 1.61% Est @ 1.87% Est @ 2.06% Est @ 2.19% Est @ 2.28% Present Value (CA$, Millions) Discounted @ 11% CA$95.7 CA$85.2 CA$76.7 CA$69.7 CA$63.6 CA$58.2 CA$53.5 CA$49.2 CA$45.3 CA$41.8 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CA$639m After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.5%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 11%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CA$118m× (1 + 2.5%) ÷ (11%– 2.5%) = CA$1.4b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CA$1.4b÷ ( 1 + 11%)10= CA$507m The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CA$1.1b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of CA$8.3, the company appears quite good value at a 36% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Doman Building Materials Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 11%, which is based on a levered beta of 1.951. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for Doman Building Materials Group Strength Dividends are covered by earnings and cash flows. Dividend is in the top 25% of dividend payers in the market. Weakness Earnings declined over the past year. Interest payments on debt are not well covered. Opportunity Annual earnings are forecast to grow faster than the Canadian market. Good value based on P/E ratio and estimated fair value. Significant insider buying over the past 3 months. Threat Debt is not well covered by operating cash flow. Revenue is forecast to grow slower than 20% per year. Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. What is the reason for the share price sitting below the intrinsic value? For Doman Building Materials Group, there are three further factors you should consider: Risks: Every company has them, and we've spotted 2 warning signs for Doman Building Materials Group (of which 1 doesn't sit too well with us!) you should know about. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for DBM's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the TSX every day. If you want to find the calculation for other stocks just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
