3 stocks with high ROE and strong earnings growth

Amongst the criteria that prudent investors use to judge a company’s value, return on equity and earnings per share growth are two that tell us what we are buying as a shareholder and part-owner of the company, and how well its earnings are growing. These three stocks have a high score in both respects, and are the signs of a great company.

Mermaid Marine (ASX: MRM) has gone through the GFC without skipping a beat. Its five-year average annual revenue growth rate is 27.9%, with average annual NPAT growth of 21.1% over the same period. Past three-year earnings per share growth clocks in at 16.8%. ROE is 15.6%, and it has manageable debt levels.

Currently, its price-earnings ratio is around 18, so it is not extraordinarily expensive comparatively, and it is roughly in line with current growth figures. Analysts have this marine service provider to the oil and gas industry increasing earnings steadily. The mining boom may be waning, but offshore oil and gas still beckons.

Seek (ASX: SEK) offers a 25.9% ROE and three-year earnings per share growth of a whopping 22.6%. Average annual revenue growth rate for the past five years is 23%. Analyst forecasts are projecting earnings per share growth by about 85% over the next three years. Seek is the market leader in online employment classified advertising, so its earning power potential and popularity have pushed up its price-to-earnings ratio to about 30. Not really a bargain price, but performance is king.

Infrastructure and environmental services company Cardno (ASX: CDD) may be thought to be tied closely with the mining industry at first glance, but it is more focussed on social infrastructure and selling software that manages the infrastructure for the end user. Just a little more than half of its revenue comes from the Americas, so there is good diversification.

Cardno has had five-year annual average revenue growth of 35.3% and five-year annual average annual NPAT growth of 32%. ROE was 13.5%. Earnings per share growth came in only at 13.9%, which may seem not to match NPAT growth, but over the last three-year period, the number of outstanding shares has increased by 63.9%, which would dilute the per share value. With a current price-to-earnings ratio of about 10, you could be buying a strong performer for a decent price.

Foolish takeaway

The growth stories are still out there, and you still have to dig around to find the ones that haven’t been priced to the sky. Good investors know you have to investigate before you invest.

Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.