For Immediate Release
Chicago, IL – October 20, 2021 – Stocks in this week’s article are Sanderson Farms Inc. (
SAFM Quick Quote SAFM - Free Report) , AutoNation Inc. ( AN Quick Quote AN - Free Report) , AllianceBernstein Holding L.P. ( AB Quick Quote AB - Free Report) ,Cross Country Healthcare Inc. ( CCRN Quick Quote CCRN - Free Report) and Revolve Group Inc. ( RVLV Quick Quote RVLV - Free Report) . 5 Top Stocks Powered by DuPont Analysis for Solid Returns
In a market where complacency levels may falter any time on central banks’ moves, any negative update on the COVID-19 front and overvaluation concerns, picking the right stock is a challenge. The metric return on equity goes a long way in resolving this issue.
The metric enables investors to differentiate between a profit-churner and a profit-burner. It is a profitability ratio that measures the earnings that a company generates from its equity.
But to fine-tune this basic concept, one can land on DuPont analysis. This theory will take investors a step higher and better pick some quality stocks.
Here is how DuPont breaks down ROE into its different components:
ROE = Net Income/Equity
Net Income / Equity = (Net Income / Sales) * (Sales / Assets) * (Assets / Equity)
ROE = Profit Margin * Asset Turnover Ratio * Equity Multiplier
Why Use DuPont?
Although one can’t play down the importance of normal ROE calculation, the fact remains that it doesn’t always provide a complete picture. The DuPont analysis, on the other hand, allows investors to assess the elements that play a dominant role in any change in ROE. It can help investors to segregate companies having higher margins from those having high turnover. For example, high-end fashion brands generally survive on high margins as compared with retail goods, which rely on higher turnover.
In fact, it also sheds light on the company’s leverage status, which can go a long way in selecting stocks poised for gains. A lofty ROE could be due to the overuse of debt. Thus, the strength of a company can be misleading if it has a high debt load.
So, an investor confined solely to an ROE perspective may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis wins over and spots the better stock.
Investors can simply do this analysis by taking a look at the company’s financials. However, looking at financial statements of each company separately can be a tedious task. Screening tools like Zacks Research Wizard can come to your rescue and help you shortlist the stocks that look impressive with a DuPont analysis.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1812250/5-top-stocks-powered-by-dupont-analysis-for-solid-returns 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
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
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Contact: Jim Giaquinto
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