Basket Village USA
It is very important to have a good understanding of a company before investing your money in it. A company’s stock fundamentals are key metrics that can provide good insight into a stock. One can assess the finances of a business such as loss of profits, balance sheet, operating costs, expenses, revenues, etc. before making investment decisions.
Return on equity (ROE) is one of the measures of financial performance that helps to assess the profitability and efficiency of the company in generating profits. A higher ROE demonstrates the effectiveness of running a business in generating revenue.
ROE is expressed as a percentage and is calculated by dividing a company’s net income by its shareholders’ equity.
A stock can be compared to its peers to decide if its ROE is good or bad. When researching stocks, it is always advisable to aim for an ROE at or above the industry average.
For example, suppose a company “XYZ” has maintained a stable ROE of 16% over the past five years compared to the average of its peers, around 13%. This implies that “XYZ” is operating above average and creating profits more efficiently using its assets.
Warren Buffett, one of the most successful investors in the world, often uses ROE to make his investment decisions.
Are stocks with a higher ROE always good?
A stock with an extremely high ROE can be considered good if its net income is extremely large relative to equity. A high ROE, however, is mainly due to a small equity account relative to its net income, which is generally more risky.
Difference Between Return on Equity (ROE) and Return on Assets (ROA)
Although ROE and ROA sound the same, there is a slight difference between the two. Let’s take a look.
In this context, let’s discuss ten ASX stocks that have a relatively higher ROE than their peers in their sector.
Grange Resources Ltd (ASX:GRR)
Grange Resources is a mining company that operates one of Australia’s largest pellet producing and iron ore mining businesses. During the June quarter, the Company’s concentrate production increased by 26 kt and pellet sales increased by 226 kt compared to the March quarter.
Beacon Lighting Group Ltd (ASX:BLX)
Beacon is driven by the mission to provide world-class, innovative, technologically advanced and efficient lighting and cooling solutions. In the first half of FY22, the company’s gross profit increased 2.3% and earnings before interest, taxes, depreciation and amortization (EBITDA) increased 3.8%.
Rio Tinto Ltd (ASX: RIO)
Rio Tinto specializes in the extraction and processing of mineral resources. It operates in approximately 35 countries around the world. In the first half of FY22, the company’s consolidated revenue decreased by 10% and underlying EBITDA decreased by 26% compared to the prior corresponding period (pcp).
IDP Education Ltd (ASX:IEL)
IDP offers free education advice and migration consultation for students wishing to study abroad. It also organizes language tests. IEL revenue jumped 47% and adjusted EBIT increased 64% in the first half of FY22.
Codan Ltd (ASX: CDA)
Codan develops electronic solutions for different sectors. Its technologies include communications and metal detection, and its products are sold in more than 150 countries. In the first half of FY22, the company’s sales increased 32% and EBITDA jumped 20%.
Resimac Group Ltd (ASX:RMC)
Resimac Group provides residential mortgages and asset finance to a wide range of clients in New Zealand and Australia. In May, Resimac closed the first social bond provided by an Australian non-bank in a $1 billion Bastille Trust Series 2022-1NC dual currency residential mortgage-backed securities transaction.
Aurelia Metals Ltd (ASX: AMI)
Aurelia Metals is an Australia-based mining and exploration company. The Company has three operating gold mines in New South Wales. In the June quarter of FY22, the company’s group revenue was A$101.2 million and ended the quarter with a strong cash balance of A76.7 million Australian dollars.
PWR Holdings Ltd (ASX:PWH)
PWR Holdings produces world-class cooling solutions and is a leading leader in high performance cooling. It has a facility specially designed for the manufacturing process. In the first half of FY22, PWR Holdings delivered solid business growth of 22% and a 16.5% conversion of revenue to net income after tax (NPAT).
Supply Network Ltd (ASX:SNL)
Supply Network Limited specializes in spare parts for road transport equipment. He works in Australia and New Zealand under the Multispares brand. In a recent announcement of preliminary earnings guidance for June 2022, Supply Network said it expects A$20 million in profit after income tax.
OFX Group Ltd (ASX: OFX)
OFX provides money transfer and exchange services in over 50 currencies. The company delivered strong results in FY22 with record net operating income of A$147 million and underlying EBITDA of A$44.5 million.
