Why the Poor Return on Equity?, page-7

Jimmy_C, I appreciate the detailed analysis, and agree with it. It confirms my own views as to why I am invested in GXL. I am convinced that GXL is getting excellent returns on invested capital, particularly on adding vet facilities to existing stores.

I prefer to be invested in a company with an ROE of 10% (my estimate for FY17) which is rising due to availability of organic investments with higher rates of return, than in a company with higher ROE which is declining due to a lack of investment opportunities and increasing competition. Keep in mind that a very high ROE can also encourage new competitors to enter the market.

GXL will be a fundamentally different, and better, company as it matures away from growing by acquisition and growing debt levels, to growing by organic investments funded by profits rather than increasing debt. I have no doubt that the market will reward GXL for this with a higher P/E over the next year or two.