For Immediate Release
Chicago, IL – Feb 1, 2018 - Stocks in this week’s article include: PetMed Express Inc. PETS, SINOPEC Shangai Petrochemical Company Ltd. SHI, NVR Inc NVR, Five Below Inc. FIVE and The Gap Inc. GPS.
Screen of the Week of Zacks Investment Research:
5 DuPont-Tested Stocks for a Winning Portfolio
In a market that may see a correction any time thanks to central banks’ moves and the consequent rising yields, geo-political concerns and overvaluation issues, picking the right stock is a task. 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 margin 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.
And that's what we're screening for today…
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/290662/5-duponttested-stocks-for-a-winning-portfolio
Get the remaining stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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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.
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PetMed Express, Inc. (PETS) : Free Stock Analysis Report
NVR, Inc. (NVR) : Free Stock Analysis Report
SINOPEC Shangai Petrochemical Company, Ltd. (SHI) : Free Stock Analysis Report
Gap, Inc. (The) (GPS) : Free Stock Analysis Report
Five Below, Inc. (FIVE) : Free Stock Analysis Report
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