3 Reasons to Avoid DOV and 1 Stock to Buy Instead

Dover trades at $199.20 and has moved in lockstep with the market. Its shares have returned 6.5% over the last six months while the S&P 500 has gained 10%.

Is now the time to buy Dover, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Dover Not Exciting?

We're swiping left on Dover for now. Here are three reasons we avoid DOV and a stock we'd rather own.

1. Core Business Falling Behind as Demand Plateaus

Investors interested in General Industrial Machinery companies should track organic revenue in addition to reported revenue. This metric gives visibility into Dover’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.

Over the last two years, Dover failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Dover might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus).

2. Recent EPS Growth Below Our Standards

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Dover’s EPS grew at an unimpressive 4.7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its flat revenue and tells us management responded to softer demand by adapting its cost structure.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Dover’s ROIC averaged 3.6 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

Dover isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 19.9× forward P/E (or $199.20 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top digital advertising picks.

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