There is a lot more to profitability than whether a company's bottom line is increasing. Profits can come from several sources, with some better than others.
To get a deeper look into a company's profit trends, we performed DuPont analysis on stocks that have hit new 52-week highs during recent sessions.
DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
We therefore focus on companies with the following positive characteristics: Increasing ROE along with,
- Decreasing leverage, i.e. decreasing Asset/Equity ratio
- Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)
Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
List sorted by market cap.
1. Intuitive Surgical, Inc. (ISRG): Designs, manufactures, and markets da Vinci surgical systems for various surgical procedures, including urologic, gynecologic, cardiothoracic, general, and head and neck surgeries. MRQ net profit margin at 27.4% vs. 25.15% year/year. MRQ sales/assets at 0.163 vs. 0.146 y/y. MRQ assets/equity at 1.159 vs. 1.171 y/y.
2. DTE Energy Co. (DTE): Operates as an electric and natural gas utility company in Michigan. MRQ net profit margin at 8.08% vs. 7.62% year/year. MRQ sales/assets at 0.091 vs. 0.088 y/y. MRQ assets/equity at 3.555 vs. 3.651 y/y.
3. Wisconsin Energy Corp. (WEC): Engages in the generation, distribution, and sale of electric energy and steam. MRQ net profit margin at 12.33% vs. 11.53% year/year. MRQ sales/assets at 0.079 vs. 0.077 y/y. MRQ assets/equity at 3.336 vs. 3.384 y/y.
4. NSTAR (NST): Engages in sale, distribution, and transmission of electricity and natural gas to commercial, industrial, and residential customers in Massachusetts. MRQ net profit margin at 12.12% vs. 9.52% year/year. MRQ sales/assets at 0.105 vs. 0.102 y/y. MRQ assets/equity at 3.822 vs. 4.076 y/y.
5. TECO Energy, Inc. (TE): TECO Energy, Inc., an electric and gas utility company, through its subsidiaries, engages in the generation, purchase, transmission, distribution, and sale of electric energy. MRQ net profit margin at 9.9% vs. 5.66% year/year. MRQ sales/assets at 0.125 vs. 0.121 y/y. MRQ assets/equity at 3.226 vs. 3.455 y/y.
6. Cal-Maine Foods, Inc. (CALM): Engages in the production, grading, packaging, marketing, and distribution of shell eggs primarily in the southeastern, southwestern, mid-western, and mid-Atlantic regions of the United States. MRQ net profit margin at 8.01% vs. 6.48% year/year. MRQ sales/assets at 0.422 vs. 0.368 y/y. MRQ assets/equity at 1.577 vs. 1.625 y/y.
*Accounting data sourced from Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.