Not All Profitable Companies Are Equal – The Hidden Truth Behind ROE & ROCE

You hear a company made ₹100 crore in profit this year. Sounds impressive, right?

But wait—another company also made ₹100 crore in profit, yet its stock has outperformed the first one by a huge margin.

How is that possible?

Because in the stock market, profit alone doesn’t tell the full story.

This is where powerful ratios ROE & ROCE come into play.

Understanding these ratios can help you pick fundamentally strong stocks while avoiding traps. Let’s break them down with simple analogies. 1. Return on Equity (ROE) – How Well Is the Company Rewarding Its Shareholders?

Imagine you start a small business with ₹1 lakh of your own money. At the end of the year, you make a ₹20,000 profit after all expenses.

ROE = Net Profit/Shareholder's Equity * 100

20000/100000 * 100 = 20% ROE

- A higher ROE means the company is efficiently rewarding its shareholders.

- Look for companies with consistent ROE above 15% over multiple years.

- ROE should be in a rising trend, which means profit should be increasing each year relative to net worth.

- If this happens, the company has a great business model and is an excellent candidate for long-term investment.

- For a debt-free company, an ROE above 15% is sufficient.

However, if a company has a leveraged balance sheet (i.e., significant debt) and still delivers below 15% ROE, it is not a worthy long-term investment. This indicates management inefficiency in utilizing capital effectively.

Mazdock - A Techno-Funda Case Study

Ever wondered how big stock moves unfold?

How can you ride them without FOMO or early exits?

Let's break down this powerful move step by step! (Read till the end for game-changing insights) The Correction – The Smart Money Trap!

Before the real move, Mazdock went through a deep correction (-26%) from its recent uptrend.

What does this mean?

- Weak hands got shaken out
- Retail traders lost interest
- Smart money started watching

Funny how the biggest moves start when most traders have given up, right?

Lesson: Every big move starts with fear.

Your job?

Stay patient & track smart money actions!

How to Effectively use "PE & PEG Ratio"

I came across a stock trading at a PE of 60. It looked so expensive. I thought, "Who in their mind would buy this?"

Meanwhile, another stock was trading at PE 12. Cheap, right? I thought I had found a hidden gem.

Fast forward five years...

- The "expensive" stock had grown 10x.

- The "cheap" stock was still struggling at the same level.

That’s when I learned a painful truth—PE ratio alone is useless.

Let me show you what I learned. 👇 1. The PE Ratio Trap

PE (Price-to-Earnings) Ratio = Stock Price / Earnings Per Share (EPS)

It tells us how much investors are willing to pay for ₹1 of a company's earnings.

Example:

A stock trading at ₹100 with an EPS of ₹10 has a PE of 10 (₹100/₹10).

Most people assume:

Low PE = Cheap stock
High PE = Expensive stock

I did too. And I was wrong.

Not All Profitable Companies Are Equal – The Hidden Truth Behind ROE, ROCE & ROA

You hear a company made ₹100 crore in profit this year. Sounds impressive, right?

But wait—another company also made ₹100 crore in profit, yet its stock has outperformed the first one by a huge margin.

How is that possible?

Because in the stock market, profit alone doesn’t tell the full story.

This is where three powerful ratios ROE, ROCE, ROA come into play.

Understanding these ratios can help you pick fundamentally strong stocks while avoiding traps. Let’s break them down with simple analogies. 1. Return on Equity (ROE) – How Well Is the Company Rewarding Its Shareholders?

Imagine you start a small business with ₹1 lakh of your own money. At the end of the year, you make a ₹20,000 profit after all expenses.

ROE = Net Profit/Shareholder's Equity * 100

20000/100000 * 100 = 20% ROE

- A higher ROE means the company is efficiently rewarding its shareholders.

- Look for companies with consistent ROE above 15% over multiple years.

- ROE should be in a rising trend, which means profit should be increasing each year relative to net worth.

- If this happens, the company has a great business model and is an excellent candidate for long-term investment.

- For a debt-free company, an ROE above 15% is sufficient.

However, if a company has a leveraged balance sheet (i.e., significant debt) and still delivers below 15% ROE, it is not a worthy long-term investment. This indicates management inefficiency in utilizing capital effectively.

How to Effectively use "PE & PEG Ratio"

I came across a stock trading at a PE of 60. It looked so expensive. I thought, "Who in their mind would buy this?"

Meanwhile, another stock was trading at PE 12. Cheap, right? I thought I had found a hidden gem.

Fast forward five years...

- The "expensive" stock had grown 10x.

- The "cheap" stock was still struggling at the same level.

That’s when I learned a painful truth—PE ratio alone is useless.

Let me show you what I learned. 👇 1. The PE Ratio Trap

PE (Price-to-Earnings) Ratio = Stock Price / Earnings Per Share (EPS)

It tells us how much investors are willing to pay for ₹1 of a company's earnings.

Example:

A stock trading at ₹100 with an EPS of ₹10 has a PE of 10 (₹100/₹10).

Most people assume:

Low PE = Cheap stock
High PE = Expensive stock

I did too. And I was wrong.

P/E ratio Vs PEG ratio.

Which is better to make money from "Stocks"?👇 What is P/E ratio?

In some words P/E ratio = Current stock price / EPS (Earnings per share) of the year.

Here, Current stock price is the price at which trading is going on or the latest close price of a stock and EPS is Earning per share of recent 4 quarters which is also know as TTM EPS (Trailing 12 months ).

Lets take an example and calculate the P/E ratio for a company for better understanding.

Find the Leaders Early: A Trader’s Guide to Spotting Big Winners

Stock selection is everything. If you don’t know where to focus, you’ll waste time on the wrong stocks.

I follow a simple scanning process daily & weekly to narrow down the best names. Let me break it down step by step.👇 A Step-by-Step Guide Step

1: Scan the 52-Week High List

Everyday, I look at stocks near their 52-week highs. I track stocks within 20% of their 52-week high. I only focus on stocks that moved 4%+ in a day, these show real strength.

Daily scans give me new names, but weekends are for deeper research. I go through the entire 52-week high list and add strong names to a separate watchlist. This helps me track consistent movers and spot emerging trends early.

Start your scan here - chartink.com/screener/52-we…

Bear Rally ?

Worried what to trade in such times ?

Let me show you in Sync with markets ! Bookmark it ! First of all mind it that you are not trading longer duration moves in bear rallies as volatility remains high, that deep pull backs occur where many of us can not stay in the name and will definitely panic at wrong times.

Telling this from personal experience after trying it. Rest your choice.

Example 1: Wave 1 Setups ( One's which moves first)

This name was showing strength in bad times and resisting to go down. The move started with earnings which shows some kind of potential catalyst also.

So, as we track Small cap indices and Market breadth sheet to find reversal areas from oversold regions, those times such setups may become a area to trade in case we are interested.

But even though the below name moved well but our job is not to trade very long moves , we are in for few days burst. As there will be rare names to show such clean characteristic.

Such setups are the first wave setups , means moves as soon as the pressure lifts off.

Mazdock - A Techno-Funda Case Study

Ever wondered how big stock moves unfold?

How can you ride them without FOMO or early exits?

Let's break down this powerful move step by step!
(Read till the end for game-changing insights) The Correction – The Smart Money Trap!

Before the real move, Mazdock went through a deep correction (-26%) from its recent uptrend.

What does this mean?

- Weak hands got shaken out

- Retail traders lost interest

- Smart money started watching

Funny how the biggest moves start when most traders have given up, right?

Lesson: Every big move starts with fear. Your job? Stay patient & track smart money actions!

Want to know the recipe of "Relative Strength"

Detailed process based on real time examples:

Much needed in current markets , Bookmark it ! If you have a good understanding on situational awareness then you know what are the areas to look for trades and also what type of moves to expect.

So in current markets we know that when we trade its shall be hit and run trades with 2-3 days burst and 10-15% gains.

Even if we expect bear rally then also hit & run is better because you won't be in risk to give a lot of gains back.

Sharing this from personal experiece after trying both.

How to make money in Earnings Season !!!

Bookmark it 😉

👇 First let me show you the potential by showing you some examples.

1. 200% move in 3-4 months with Earnings

2. 130% quick move in 2-3 months

How Blending Fundamentals and Technicals can create wonders ?

If you want to learn a method to make money, check it out. Mostly people have been too much biased on one side either Technicals or Fundamentals to even think that either of it can help your win rate a lot.

Others don’t want to put efforts as learning a new skill is always hectic especially when you are working on one.

Worry not, I will help integrate both for both type of market participants.

P/E Ratio ⏭️ Future Growth👉💰

Forward PE !!

Deep Dive 👇 Forward PE tells us whether there is any valuation gap or not in the particular counter.

Because if we are going to invest or trade something then we will only go if there is a chance for us to make money.

So, to understand whether to consider the stock or not we need to learn about Forward PE.

Decode Earnings quickly !

Many of times we get confused by looking at YoY nos. growth and mistaken them for an excellent opportunity.

Indeed the company may have done superb work , but whether there is scope or not is the main thing we need to figure out as a "Techno Funda trader".

So, In the below case study we can see that Mar 2024 Quarter came up with increased Margins. Now that is a key thing here in this earning which shall pull our interest.

So, Now with a quick glance we can say that its probably a change of trend in earnings.

For that we have to look a bit deeper but yes this shall make us study it. Now what all we have to look and questions to ask?

🌟 Is the increased margin a one off or seasonality ?

🌟 Is there any change which lead to increase in margins and what is management saying going forward.

Like in this example company did structural changes to get a better hold on there margins, they sort of moved from a total commodity based to controlled margin area.

Now what is the significance of this change?

This matters as companies with high commodity style gets low PE multiples where as if there is better control they may get better Multiples.

Now lets check the Technical.

P/E ratio can make you rich !

Lets find out. What is P/E ratio?

In some words P/E ratio = Current stock price / EPS (Earnings per share) of the year.

Here, Current stock price is the price at which trading is going on or the latest close price of a stock and EPS is Earning per share of recent 4 quarters which is also know as TTM EPS (Trailing 12 months ).

Lets take an example and calculate the P/E ratio for a company for better understanding.

Hey Investors !

How to use 52 week High list effectively to increase your odds ?

👇👇 Time Value is one of the key elements which many of us ignore a lot of time in awe of fundamentals.

Or we can say many a times we get stuck in value trap.

But what if i tell you that there is a Solution to avoid this waste of Time value to certain extent ?

That will be amazing right ? Lets understand

Step by Step guide on how to get better in Stock market.

If you are struggling , please read this. First of all remove all the biases from your head because i am not going focus on particular area of markets.

I am going to share a wholesome approach which i came to after years of trail and errors.

Lets get on.

Very Important element to make money from markets :

"Position Sizing"

Lets understand. We have either been driven by FOMO to do big sizes to make quick money or by fear to stay low to save money.

Position sizing is not an isolated decision you can just take and start trading. It has to be totally in sync with your Trading style.

After trading from low Position size to trying heavy sizing and then finding the optimum area for myself.

So, how you can find your sweet spot.

Decode Earnings quickly !

Many of times we get confused by looking at YoY nos. growth and mistaken them for an excellent oppurtunity.

Indeed the company may have done superb work , but whether there is scope or not is the main thing we need to figure out as a "Techno Funda trader".

So, In the below case study we can see that Mar 2024 Quarter came up with increased Margins. Now that is a key thing here in this earning which shall pull our interest.

So, Now with a quick glance we can say that its probably a change of trend in earnings.

For that we have to look a bit deeper but yes this shall make us study it. Now what all we have to look and questions to ask?

🌟 Is the increased margin a one off or seasonality ?

🌟 Is there any change which lead to increase in margins and what is management saying going forward.

Like in this example company did structural changes to get a better hold on there margins, they sort of moved from a total commodity based to controlled margin area.

Now what is the significance of this change?

This matters as companies with high commodity style gets low PE multiples where as if there is better control they may get better Multiples.

Now lets check the Technical.

Looking to create Wealth from Stock Markets ?

Here is everything you need to know worth more than 20,000/- for free !

Limited time offer. Chapter 1 - Understand, How to use P/E ratio to make money !

https://x.com/ItsVinay01/status/1770292786224316551

How to keep a tab on bases without significant Price or Volume trigger to attract your focus?

Golden way to keep potential winners in your list👇👇 Once you get to know that a particular stock is entering in Stage 2 with significant strength and cleaner price action.

Immediately put it in tracking list. Why?

Because many leaders will tend to have multiple bases and they will silently form a continuation base without making much noise.

Even though you may miss a move in first trend but make a rule to catch maximum if they move further.

Some examples -