6 Popular Stocks by ROE

  • Jul 30, 2020 NZST
  • Team Kalkine
6 Popular Stocks by ROE

Summary

  • ROE is a good measure to assess whether to enter a stock or not.
  • ROE should be compared with the figure of industry median to have a better picture of the stock.
  • Apart from ROE, market players need to examine other key metrics also like net margin, gross margin, asset turnover ratio, etc.

Return on Equity (or ROE) is a metric which investors should focus on before they decide to buy the company’s stock. Comparison with other companies can help in providing a clear picture as to whether or not one should invest. For example, if a company ABC Ltd has ROE of 10% and the industry median figure stands at 8%, this means that ABC Ltd is better than its industry peers. However, it is important to note that this is only one metric. When it comes to investing, market players are required to look at other parameters as well.

ROE is considered as a very suitable measure for evaluating a particular company against its competitors and higher ROE is generally seen as a positive sign.

In this article, we will have a look at 6 companies and their ROE figures.

The a2 Milk Company Limited

The a2 Milk Company Limited (NZX: ATM) is an NZX-listed milk supplier. In 1HFY20, ATM posted ROE of 21.4% which is significantly higher if compared to the industry median of 10.1%. Although ROE is in a good position, one should also analyse other key ratios like gross profit margin, net profit margin, Debt/Equity ratio, etc.

The company’s net margin stood at 23.4% in 1HFY20, higher than the industry median of 11.4%, demonstrating that the company is possessing decent capabilities to convert its top line into bottom line.

In order to understand whether the company is properly utilizing its assets to generate sales, we will now look at the company’s asset turnover ratio which is 0.74x, higher than the industry median which is at 0.53x.  This represents that if compared to the industry, ATM is utilizing assets more efficiently than its peers to generate revenue or sales.

Now, to have a better understanding about leverage of the company, we will look at Assets/ Equity ratio. Assets/Equity ratio of ATM is 1.22x, which is lower than its industry median of 1.91x.

Let us now look at some more companies and analyse their ROE figures.

Pushpay Holdings Limited (NZX: PPH)

The company’s ROE stood at 34.1% in FY20, which is higher than the industry median of 13.4%. Now, if we look at the net margin, it stood at 12.6%, which is higher than the industry median of 7.8%. Its asset turnover ratio also stood at 1.35x, which is higher than the industry media of 0.44x. The company’s assets/equity ratio stood at 2.55x, which is higher than the industry median of 1.66x.

The company’s NPAT declined by US$2.8 million or 15% in FY20 to US$16.0 million. The previous financial year consisted one-time benefit arising from previously unrecognised tax losses as well as deferred research and development expenditure of US$20.9 Mn, that contributed to net gain of US$18.8 Mn.

Fisher & Paykel Healthcare Corporation Limited

ROE of Fisher & Paykel Healthcare Corporation Limited (NZX: FPH) stood at 30.5% in FY20, which is higher than the industry median of 27.3%. Now, if we look at the net margin, it stood at 22.7%, which is higher than the industry median of 17.8%. Its asset turnover ratio stood at 0.96x, which is higher than the industry media of 0.72x. The company’s assets/equity ratio stood at 1.47x, which is lower than the industry median of 1.50x.

ROE (Source: Refinitiv (Thomson Reuters))

ROE (Source: Refinitiv (Thomson Reuters))

The company’s NPAT was up by 37 percent to $287.3 million and the operating revenue was up by 18% to $1.26 billion. The increase in revenue was largely because of growth in the usage of the company’s OptiflowTM nasal high flow therapy, demand for the products used to treat coronavirus patients, and strong hospital hardware sales across the course of the year.

Spark New Zealand Limited (NZX: SPK)

The company’s ROE stood at 11.6% in the half-year to December 31, 2019, which is higher than the industry median of 3.3%. Now, if we look at the net margin, it stood at 9.2%, which is higher than the industry median of 7.0%. Its asset turnover ratio also stood at 0.44x, which is higher than the industry media of 0.21x. The company’s assets/equity ratio stood at 3.01x, which is same as the industry median.

The company’s net profit after tax rose by 9.2% to $167 million for the half-year ended 31 December 2019. This was mainly driven by growth in EBITDAI and a lower depreciation and amortisation expense.

NZX Limited (NXZ: NZX)

The company’s ROE stood at 23.4% in FY19, which is higher than the industry median of 8.0%. Now, if we look at the net margin, it stood at 21.1%, which is lower than the industry median of 28.8%. Its asset turnover ratio also stood at 0.35x, which is higher than the industry median of 0.07x. The company’s assets/equity ratio stood at 3.33x, which is below the industry median of 4.50x.

For the full-year ended 31 December 2019, the company reported net profit after tax amounting to $14.6 million, up by 25.7% on FY18 and, on a continuing operations basis, NPAT was up by 7.1% as compared to 2018.

Property for Industry Limited (NZX: PFI)

The company’s ROE stood at 17.9% in FY19, which is higher than the industry median of 6.6%. Now, if we look at the net margin, it stood at 183.1%, which is higher than the industry median of 76.5%. Its asset turnover ratio stood at 0.07x, which is higher than the industry media of 0.06x. The company’s assets/equity ratio stood at 1.44x, which is below the industry median of 1.51x.

For the full year, the company’s net profit after tax witnessed a rise of 60% to $176.3 million, with both key growth metrics showing positive progress: Funds From Operations rose by 2.6% to 9.07 cps, while Adjusted Funds From Operations were up by 4.4 percent to 7.79 cps.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
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