DuPont analysis: These 4 stocks gained over 500% in the last three years

DuPont analysis -- an increasing operating profit margin, an increasing asset turnover, and a decreasing asset-to-equity ratio.

Picking stocks to invest in could be tricky at times, particularly when there are tips flying around left, right and centre. There are many aspects one must ideally consider before settling on a scrip to invest in because rushing in blindly to where the light is shining the brightest may not always pay off.

A DuPont analysis is one of the most apt indicators to go by when it comes to picking stocks because it gives you the exact return on equity (RoE) for a particular stock. In order to do so, it combines three of the most important parameters that pertain to the profitability of a company -- operating profit margin, operational efficiency (based on total asset turnover), and financial leverage (based on ratio of total assets to equity).

However, a DuPont analysis is only a tool of measure and does not exactly spell out which stock is worth investing in. 

An increasing operating profit margin indicates that a company is making more today for the same amount of products sold than it was making earlier, while an increasing asset turnover is indicative of improving profitability of a company as a whole. A decreasing asset-to-equity ratio indicates that a company is less dependent on debt than it was before.

Although there are many companies who reported an increase in their return on equity over the last three years, only 15 managed to do so while meeting all three above-mentioned criteria. And not surprisingly, 13 of these stocks have returned between 100 and 970 percent over the last three years.

Among these 13 stocks, COSYN, Maithan Alloys, Associated Alcohols and Vakrangee led the pack with gains of over 550 percent.

Of the 15 companies that passed our filters, there were four IT companies -- 8K Miles Software Services, COSYN, Onward Technologies and Vakrangee -- and three auto ancillary companies -- GP Petroleums, Harita Seating Systems, Investment & Precision Castings.

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