The Return on Equity (ROE) ratio shows the return being generated for every dollar of equity on the balance sheet. It varies by industry but ROEs of 15% or over are usually considered desirable. High ROE numbers sustained over the long term may indicate a company has a 'sustainable competitive advantage'. Such companies tend to sell at higher valuation multiples.
ServeCorp has an ROE of 15.4%, which is excellent.
The impact of leverage is one of the disadvantages of focusing on ROEs as it can skew ROE upwards - an alternative is to look at Return on Capital (ROC) Employed. But then again ROC of SRV is gain great at 12%.
SRV is therefore a quality and value company even though it has lost some of its current momentum evident by the drop in its share price.
It has a 13.6 12 month forecast rolling PE and with a great Dividend Yield of 4.73% to me this is a bargain BUY at current low price for this stock.
SRV Price at posting:
$5.26 Sentiment: Buy Disclosure: Held
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