Which are the best high ROE stocks in India?
As per Equitymaster's Stock Screener, these are the best high ROE stocks in India right now...
Please note, these companies are categorized by latest financial year's ROE. These companies also fare well if we take their 3-year or 5-year average ROE.
- #1 NESTLE
- #2 HINDUSTAN ZINC
- #3 LIFE INSURANCE CORPORATION
- #4 BRITANNIA
- #5 TCS
These are not recommendations...just a filtered list of stocks. To find the best ROE stocks to invest in, you need to dig deeper into each company and study their future prospects.
What does ROE stand for and what is the formula for calculating ROE?
ROE stands for return on equity. It is the net income from the firm's most recent income statement, divided by the total equity at the end of the period.
To identify multibagger stocks with the help of ROE, check the ROE trend for the past five or seven years. It should show a consistent and increasing trend.
What is a good ROE for stocks in India?
The ROE (Return on Equity) is one of the most important criteria when filtering stocks to invest in.
ROE represents a firm's ability to generate returns for its shareholders. It tells us how much profit the firm generates for each rupee of equity it owns.
If a company has a low ROE, it means it has not used the capital invested by shareholders efficiently and vice versa.
While there's no set criteria, a company consistently reporting ROE of 15-20% or above is considered good.
It also depends on the specific industry the company is involved in because different companies have varying levels of assets and debt on their balance sheet.
Check out different screens on Equitymaster's Indian stock screener. This tool shortlists stocks which fare well on fundamentals as well as valuations. Here are some of the popular screens:
How to use Return on Equity (ROE) to identify multibagger stocks?
It's no secret that companies with high return ratios generate good returns for their shareholders.
To identify multibagger stocks with the help of ROE, check the ROE trend for the past five or seven years. It should show a consistent and increasing trend.
A steady and rising ROE is an indicator that management is giving shareholders more for their money.
Is ROE the most important ratio to identify stocks to buy?
Of all the ratios that investors look at, return ratios are important. Return ratios represent a company's ability to generate returns for its shareholders.
So, along with ROE, ROCE and ROA are equally important.
ROE, however, faces one drawback. A company that takes high levels of debt will show up a high ROE.
Hence it is advised to look at trends for all return ratios over a number of years and analyze each of its components. It will not only help you understand the company's profit and loss statement better, but also balance it against the overlooked left and right sides of the balance sheet.