By James Dennin for Kapitall.
The Consumer Confidence report came out on Tuesday and the news
a lot better than previously expected
: climbing 3 points from 82.2 to 85.2, the highest level since
While other measures of consumer sentiment have been mixed,
all the numbers are closely scrutinized as consumer spending
accounts for about 70% of the US economy.
Also bolstering stocks this week was a strong number for housing
sales, which rose faster in May than they have in 22 years. A
lot of investors will be watching tomorrow's GDP report before
making too many changes to their portfolio.
But the numbers are still encouraging, so we decided to look
into retail and consumer goods stocks in case any will get a bump
from the news.
We decided to screen for consumer goods and retail stocks that
have rising profits. To do that we used the
DuPont breakdown of return on equity (ROE)
. ROE Is a good measure of profitability, however it can be
manipulated by changes in leverage: as the company takes on
more debt, shareholders' equity will decrease, thus boosting
The DuPont breakdown gives a much more detailed
picture of where the ROE is coming from. In the best case it comes
from higher sales of more expensive goods.
ROE = (net profit margin) * (asset turnover) * (equity
- Operating efficiency: net profit margin = net income /
- Asset use efficiency: asset turnover = revenue / total
- Leverage: equity multiplier = assets / stockholders
Using this model, if a company's ROE rises due to an increase in
net profit margin or asset turnover, it is a signal that the
business is doing well and expanding for the right reasons. However
if leverage is the key factor, then the company may not be
doing as well as it appears.
Click on the interactive chart to view data over
1. PriceSmart Inc.
): Operates warehouse clubs in the United States, Latin America,
and the Caribbean. Market cap at $2.61B, most recent closing price
MRQ net profit margin at 4.19% vs. 4.1% y/y.
MRQ sales/assets at 0.808 vs. 0.766 y/y.
MRQ assets/equity at 1.674 vs. 1.789 y/y.
2. Monro Muffler Brake Inc.
): Provides automotive undercar repair and tire services in the
United States. Market cap at $1.74B, most recent closing price at
MRQ net profit margin at 5.86% vs. 4.15% y/y.
MRQ sales/assets at 0.267 vs. 0.265 y/y.
MRQ assets/equity at 1.827 vs. 2.026 y/y.
3. PetSmart, Inc.
): Operates as a specialty retailer of products, services, and
solutions for pets in North America. Market cap at $5.65B, most
recent closing price at $56.96.
MRQ net profit margin at 6.% vs. 5.99% y/y.
MRQ sales/assets at 0.692 vs. 0.691 y/y.
MRQ assets/equity at 2.331 vs. 2.354 y/y.
4. Tiffany & Co.
): Engages in the design, manufacture, and retail of fine jewelry
worldwide. Market cap at $12.86B, most recent closing price at
MRQ net profit margin at 12.41% vs. 9.33% y/y.
MRQ sales/assets at 0.21 vs. 0.192 y/y.
MRQ assets/equity at 1.696 vs. 1.76 y/y.
(List compiled by James Dennin. Monthly returns sourced from
Zacks Investment Research, Dupont Breakdown sourced from Google
Finance. All other data sourced from Finviz.)
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