An ROE Scorecard (ft. AAPL, MSFT, ASML, HD, ADBE, and more!)
Aggregating ROE metrics for the market, industry, sector, and history
Yesterday, we saw that we could compare the ROE for a company (like Apple) a few different ways - versus the market, its industry, its sector, and its own history. By doing that, we got four different looks at a single metric:
The question from this then becomes, what if we compared over 3,000 stocks against each other for each of these four metrics? And, what if we simplified the results by scoring them on a traditional kind of grading scale from 0 to 100? Furthermore, what if we then aggregated those individual grades into one aggregate grade, so that we could easily see which stock was performing the best for a given metric at a glance?
Well, we end up with the following table - which shows 25 of the largest companies in the stock market:
Who are the standouts for this new aggregated metric? Well, companies that we might expect such as Apple and Microsoft but also a few others like Adobe and Home Depot. At the bottom of this sample are companies like Toyota, Tesla, and Disney.
As a side note, while we have four different underlying metrics, at the end of the day, they are all based on the same thing - ROE. To make sure there isn’t too much overlap, we can consider the correlation of the four underlying metrics and the aggregate score to see if the correlation looks too high:
Right now, the market and historical metrics seem to have a decent (but not alarming) amount of correlation. Overall, it appears that each of the four metrics bring something worthwhile to the table.
All that being said, ROE is just one of the eleven metrics we looked at so far this year when analyzing 2021 performance against fundamentals. There are still ten other metrics to look at:
For each of these metrics, we can make a scorecard just like the one we did above. That’s a ton of data! We can even calculate aggregate scores at the category level and overall. So, we will soon have a lot of information to look at when we are analyzing stocks.