Zacks.com Featured Highlights Include: Ross Stores, Shoe Carnival, Stitch Fix, Amedisys And NVR
Zacks Investment Research | Jul 17, 2019 10:13PM ET
For Immediate Release
Chicago, IL – July 18, 2019 - Stocks in this week’s article are Ross Stores Inc. (NASDAQ:ROST) , Shoe Carnival (NYSE:CCL) Inc. (NASDAQ:SCVL) , Stitch Fix Inc. (NASDAQ:SFIX) , Amedisys Inc. (NASDAQ:AMED) and NVR Inc. (NYSE:NVR) .
5 Top-Ranked Stocks Empowered by Dupont Analysis
Return on equity is an investor-favorite metric when it comes to cherry picking quality stocks. But ROE doesn’t always tell the complete story and an investor might get fooled by picking stocks based on this number. Thus, taking a step beyond the basic ROE and analyzing it at an advanced level or applying the DuPont (NYSE:DD) technique seems to be an intriguing idea.
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?
The DuPont analysis allows investors to assess the elements that play a dominant role in any change in ROE. It can help investors to separate companies having 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.
In fact, it also focuses on the company’s leverage status. A lofty ROE could be due to the overuse of debt. If this is the case, the strength of a company can be uncertain if it has a high debt load.
So, an investor confined solely to a ROE perspective may be confused if he or she has to judge between two stocks of equal ratio. This is where DuPont analysis gets the upper hand while finding out 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: Original post
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