Key Takeaways:
- Domino’s Pizza generates 70% annual returns on capital, and Warren Buffett’s Berkshire Hathaway recently increased its stake in the company by 86%.
- AutoZone has averaged over 50% returns on capital over the past decade, fueling 18% annual stock returns.
- Ross Stores maintains 20% returns on capital, and analysts think the stock has about 20% upside today.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
Stocks with high returns on invested capital (ROIC) tend to outperform over time because the underlying businesses are able to reinvest capital at high rates of return and compound shareholder value.
Here are three stocks with exceptionally high ROIC. Warren Buffett is buying Stock #1, but Stock #3 looks the most undervalued today.
1: Domino’s Pizza (DPZ)
Domino’s is one of the largest pizza chains in the world, operating over 21,000 stores across more than 90 countries.
Last quarter, Warren Buffett’s Berkshire Hathaway increased its stake in Domino’s by 86%. This raised their total position in the company to around $1 billion:
Why Domino’s stands out:
- The company generates an exceptional 70% annual return on capital.
- Domino’s has consistently expanded its store count and same-store sales, driving growth.
- Analysts think the stock still has about 10% upside today.
Domino’s is a high-quality business, and analysts think the stock has 10% upside.
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2: AutoZone (AZO)
AutoZone is one of the leading retailers of automotive parts, selling products for vehicle maintenance and repair.
The company has averaged over 50% returns on capital over the past 10 years, helping the stock deliver about 18% annual returns over the past decade.
Why AutoZone is worth watching:
- The company’s strong return on capital has fueled steady long-term growth.
- Analysts believe the stock is fairly valued today but could be worth buying if the price dips.
AutoZone remains a high-quality compounder, but the next stock on this list offers more upside today.
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3: Ross Stores (ROST)
Ross Stores operates Ross Dress for Less and dd’s DISCOUNTS, offering affordable fashion and home goods.
While the company used to generate over 50% returns on capital, its ROIC has stabilized around 20%, which is still an impressive number.
Why Ross Stores could be the best opportunity on this list today:
- The stock is down about 10% this year, making it look more attractive.
- Analysts think the stock has about 20% upside from current levels.
Ross Stores continues to be a profitable retailer with strong margins, and after its recent decline, it could be the best bargain on this list.
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TIKR Takeaway
Investing in companies with high returns on capital can be a great strategy for long-term investors.
Domino’s, AutoZone, and Ross Stores have all delivered exceptional returns on capital, but analysts believe Ross Stores offers the most upside today.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
