For Immediate Release
Chicago, IL – April 20, 2020 – Stocks in this week’s article are USANA Health Sciences Inc. USNA, Semler Scientific Inc. SMLR, EMCOR Group Inc. EME, Vipshop Holdings Limited VIPS and Renewable Energy Group Inc. REGI.
Have Faith in DuPont Analysis: Pick These 5 Stocks
Wall Street is extremely volatile at the current level due to the coronavirus-led lockdowns and its disastrous impact on the economy. So, picking the right stocks is a challenge here. 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.
For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/876175/have-faith-in-dupont-analysis-amp-pick-these-5-top-stocks?cid=CS-ZC-FT-analyst_blog%7Crw-876175
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EMCOR Group, Inc. (EME) : Free Stock Analysis Report
Renewable Energy Group, Inc. (REGI) : Free Stock Analysis Report
USANA Health Sciences, Inc. (USNA) : Free Stock Analysis Report
Vipshop Holdings Limited (VIPS) : Free Stock Analysis Report
Semler Scientific Inc. (SMLR) : Free Stock Analysis Report
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