Today we have identified four TSX stocks with above average Return on Assets (ROA)
SmallCapPower | April 30, 2019: Return on Assets (ROA) is a common profitability ratio used by financial analysts to determine how efficient management is at using its assets to generate earnings. The ratio is calculated by dividing a company’s net income by its total assets. The higher the return the more effective management is at utilizing the company’s assets to generate profit. This ratio used to be more widely used with manufacturing companies in the 1950s and 1960s. With the rise of Internet and technology companies, which can generate profit with limited assets, its use has declined in recent years. However, it is still an important metric for construction, natural resources, and retail companies. Today we have discovered four TSX stocks with above average ROA. For reference, the average ROA of our sample of 689 TSX-listed stocks is -4.0%.
*Share prices as at close April 26, 2019, data obtained from S&P Capital IQ
Norbord Inc. (TSX:OSB) – $33.51
Forest & Wood Products
Norbord is a global manufacturer of wood-based panel products and Oriented Stand Board (OSB) for residential and light commercial construction. The Company operates 15 OSB mills and two U.K. based plants that produce particleboard and other value-added products. Norbord’s current strategy focuses on margin improvement, having delivered $331M of margin expansion over the past 14 years. It also intends to diversify into specialty products to reduce earnings volatility and reliance on the residential housing market. Norbord has a sustainable growth rate of 40%. Norbord reported Q4/18 financials on February 1: EPS was $0.30 on revenues of $501M, which beat consensus estimates of $0.24 and $473M.
- Return on Assets (ROA): 18.1%
- Market Cap: $2,745.7 Million
- YTD Return: -7.4%
- 90-Day Average Trading Volume: 314,000
Canfor Corporation (TSX:CFP) – $13.87
Forest & Wood Products
Canfor Corporation is an integrated forest products company that produces softwood lumber, pulp and paper products, remanufactured lumber products, engineered wood products, wood pellets and energy. Its segments include lumber, and pulp and paper. Its lumber segment includes logging operations, and manufacturing and sale of various grades, widths and lengths of lumber, engineered wood products, wood chips and wood pellets. Its lumber operations also include a finger-joint plant, two glulam plants, a whole-log chipping plant and a trucking division. The Pulp and Paper segment consists of three northern softwood market Kraft pulp mills and the Taylor pulp mill, all of which are owned and operated by Canfor Pulp Products Inc. (CPPI) in British Columbia. On February 21, Canfor reported Q4/18 results: EPS was ($0.23) on revenues of $1,020M, while consensus analyst estimates called for ($0.13) and $983M.
- Return on Assets (ROA): 10.2%
- Market Cap: $1,724.3
- YTD Return: -16.7%
- 90-Day Average Trading Volume: 407,000
Badger Daylighting Ltd. (TSX:BAD) – $44.51
Construction and Engineering
Badger Daylighting is a provider of non-destructive excavating services. The Company provides services for contractors and facility owners in the utility and petroleum industries. The Company rents and sells various lines of trench shielding used to shore and strengthen trenches, provides sewer inspection services and provides general vacuum truck & auxiliary services to the Oil and Gas industry. The Company pays a $0.045 monthly dividend, or $0.54 per share on an annualized basis (annual dividend yield: 1.3%). On March 12, Badger announced Q4/18 results: EPS was $0.63 on revenues of $178.6M, which respectively beat the Street consensus of $0.54 and $156.0M.
- Return on Assets (ROA): 11.6%
- Market Cap: $1,590.9
- YTD Return: 37.5%
- 90-Day Average Trading Volume: 169,000
Aritzia Inc. (TSX:ATZ) – $19.42
Retail, Apparel, and Accessories
Aritzia engages in the design and retail of accessories and women’s apparel with millennial appeal. The Company sells its products under the Aritzia banner, as well as other banners such as TNA, Babaton, and Wilfred. Aritzia operates a network of 61 retail stores across Canada and 20 across the United States, as well as an eCommerce portal through atrizia.com. On January 9, the Company released its fiscal Q3 2019 results, reporting a 16% EPS increase and an 18.8% increase in revenue. On March 8, Aritzia announced the closing of a follow-up equity offering for total gross proceeds of $330M. The Company is planning on using $107M from the follow-up equity offer to buy back shares from Berkshire Partners, the private equity firm that took Artizia public. The remainder is expected to be used to finance additional store openings and expansion into new markets.
- Return on Assets (ROA): 11.5%
- Market Cap: $2,464.1
- YTD Return: 17.7%
- 90-Day Average Trading Volume: 326,000
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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