For Immediate Release
Chicago, IL – November 23, 2021 – Stocks in this week’s article are Sanderson Farms, Inc. (
SAFM Quick Quote SAFM - Free Report) , Pool Corporation ( POOL Quick Quote POOL - Free Report) , Casey's General Stores, Inc. ( CASY Quick Quote CASY - Free Report) , Global Industrial Company ( GIC Quick Quote GIC - Free Report) and Landstar System, Inc. ( LSTR Quick Quote LSTR - Free Report) . Bet on DuPont to Find Top-Rated Healthy Stocks
Return on equity (ROE) is one of the most-favored metrics of investors. It is a profitability ratio that measures the earnings generated by a company from its equity. Investors can follow the ROE trend in companies and compare this to the historical or industry benchmarks to pick a winning stock.
However, stepping beyond the basic ROE and analyzing it at an advanced level could lead to even better returns. Here is where the DuPont analysis comes into play.It is an analytical method, which examines three major elements — operating management, management of assets and the capital structure — related to the financial condition of a company. Below we show 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
Sanderson Farms, Pool Corp., Casey's, Global Industrial Co. and Landstar System are some of winning stocks screened based on the afore-mentioned criteria.
Why Use DuPont?
Although one cannot brush off the importance of normal ROE calculation, the fact remains that it doesn’t always portray 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 with higher margins from those having a high turnover. For example, high-end fashion brands generally survive on high margin as compared with retail goods, which rely on higher turnover.
And one of the ROE components – equity multiplier (explained below) – can help you judge how burdened a company is with debts. 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 a 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/1830233/bet-on-dupont-to-buy-5-top-ranked-healthy-stocks 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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