Time to Take Stock
Like people, not all companies are created equally. Some can compound wealth for years, while others hit limits much sooner. The difference often comes down to three words: Return on Equity (ROE).
This week, Richard Hemming, founder of Under the Radar Report, explains why it might be time to take profits on three ASX stocks that have run hard: Qantas Airways, Downer EDI, and Super Retail Group.
Why ROE Matters
ROE measures how efficiently a company converts shareholder equity into profit. High ROE can signal strong management and competitive advantage, but when it’s driven by unusual factors or unsustainable momentum, it can also be a warning sign.
1. Qantas Airways ($QAN)
- 12-month return: +65%
- 3-year average return: +35% p.a.
- Recent dividend: 53 cents
Qantas has been flying high thanks to Jetstar and record dividends, but the numbers highlight its fragility: a $75 billion market cap against equity of less than $1 billion. That slim equity base makes its ROE extremely volatile — swinging from deep negatives to enormous spikes (see our ROE chart).
Takeaway: Qantas is not a long-term hold. After such a run, it’s sensible to take some profits.
2. Downer EDI ($DOW)
- Recent returns: +20% p.a. in recent years
- ROE: lifted from mid-single digits to 13% (forecast 16%)
Downer has transformed itself from a mining contractor into an infrastructure and utilities business. ROE has improved significantly, but with flat sales growth forecasts, those heroic ROE assumptions may not last.
Takeaway: Another case for trimming exposure.
3. Super Retail Group ($SUL)
- Share price momentum: +50% in 4 months (+20% during results season)
- ROE: steady in the high teens
- P/E ratio: re-rated from low teens to high teens
Super Retail has benefited from resilient sales across Rebel, BCF, and Supercheap Auto. While margins and ROE remain steady, analysts expect only mid-single-digit earnings growth going forward. With valuation multiples already stretched, the stock’s upside is limited.
Takeaway: Strong momentum has delivered outsized gains, but growth is slowing.
The Bottom Line
These stocks aren’t being downgraded to sells, but after huge runs it’s prudent to take risk off the table.
“Trees do not grow to the sky. Take some profits to the bank.” – Richard Hemming
At Under the Radar Report, we believe in balancing winners with fresh opportunities. The best strategy is knowing when to cash in and when to redeploy capital into high-potential small caps.
Next Steps
- 📊 Explore our latest Best Buys for ASX small caps.
- 🎥 Watch more videos on our blog:
