For Immediate Release
Chicago, IL – September 3, 2020 – Stocks in this week’s article are Kinsale Capital Group, Inc. (
KNSL Quick Quote KNSL - Free Report) , American States Water Company ( AWR Quick Quote AWR - Free Report) , Gibraltar Industries, Inc. ( ROCK Quick Quote ROCK - Free Report) , D.R. Horton, Inc. ( DHI Quick Quote DHI - Free Report) and West Pharmaceutical Services, Inc. ( WST Quick Quote WST - Free Report) . Buy These 5 Low Leverage Stocks Amid Ongoing Economic Crisis
In the theory of finance, leverage refers to the use of borrowed funds, which companies invest in their business in expectation of generous returns. This borrowing can be done through debt financing or equity financing.
Empirically, debt financing has achieved more popularity when compared to equity financing.
This is because, on availing debt financing, the company’s equity does not get diluted as a result of issuing more shares of the stock. In other words, the borrower has no claim in the company’s shares.
Another perk of debt financing is that the interest on debt is tax deductible.
However, one should keep in mind that debt financing remains a feasible option as long as the companies succeed in generating a higher rate of return compared to the interest rate. Exorbitant debt financing might even lead to a corporation’s bankruptcy in a worst case scenario.
Moreover, as the global economy is still topsy turvy, thanks to the coronavirus pandemic, investors should be even more careful while choosing stocks. This gives investors all the more reasons to be acquainted with leverage.
Considering the aforementioned discussion, one can safely invest in a stock as long as it bears a low level of debt.
Historically several leverage ratios have been developed to measure the amount of debt a company bears and the debt-to-equity ratio is one of the most common ratios.
Debt-to-Equity Ratio = Total Liabilities/Shareholders’ Equity
This metric is a liquidity ratio that indicates the amount of financial risk a company bears. A company with a lower debt-to-equity ratio shows improved solvency for a company.
With the Q2 reporting cycle almost over, investors must be eyeing stocks that exhibited solid earnings growth in the prior quarters. But if a stock bears a high debt-to-equity ratio, in times of economic downturns, its so-called booming earnings picture might turn into a nightmare.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1051514/buy-these-5-low-leverage-stocks-amid-ongoing-economic-crisis Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. About Screen of the Week
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