Measuring worth: Front-row seats to high return-on-equity stocks

A portfolio of richly valued RoE stocks is expected to outperform the broader market over the longer term.

The return-on-equity (RoE) is one of the best ways to screen high-performance companies in the stock market. Companies delivering high double-digit returns on their equity/networth (or shareholder funds) tend to grow faster than peers with a low RoE.

Higher RoE also empowers companies to invest in their growth and expansion without resorting to debt financing. This makes them less impervious to business cycles and volatility in the financial/bond markets.

Companies that deliver consistently high RoE also tend to be cash-rich and pay generous dividends to shareholders or do large share buybacks. Moreover, they also tend to command higher stock valuations,