3 Stocks With High ROE and Market-Beating Growth Potential
As of March 11, U.S. markets are quickly approaching correction territory with several consecutive days of selloffs amid broad uncertainty about tariffs and other economic factors. In these scenarios, investors may be inclined to sell before prices drop too far, holding cash or equivalents until the market seems safe enough to enter once again; they may also turn to defensive plays in the meantime. One alternative strategy that takes a more proactive approach is to target companies with maximum profitability.
By focusing on highly profitable firms, investors may succeed in identifying companies positioned to give up some of that profitability in uncertain economic times while still remaining profit-generating overall. A key metric to determine profitability is the return on equity (ROE), calculated by dividing a company's annual net income by its shareholders' equity. Higher ROEs typically indicate a company is more efficient at generating net income for every dollar of shareholder equity and, thus, more profitable.
Major Earnings Rally and an Equally High ROE
Power Solutions International Inc. (NASDAQ: PSIX) designs and builds power systems and electrical power generation equipment for a range of applications, including agricultural products, industrial machinery, and construction vehicles. Net sales growth has accelerated in recent periods, and the company reported an exceptional 122% year-over-year improvement in net income for the latest quarter as of March 11, 2025.
Driving some of these gains is the company's work in the data center industry, which is rapidly growing in light of the continued surging demand for AI applications. Based on its fundamentals and the company's aggressive shift toward higher growth markets and away from some of its areas of business with less growth potential, Power Solutions' 12-month rally of about 1,350% makes sense.
The company's ROE is an astronomical 293.4%. Typically, an ROE at this level indicates potential issues with debt—for example, a company that has taken on excessive amounts of debt in a bid to boost earnings performance. For PSIX, the current ratio of 1.02 suggests that the firm is likely presently able to handle its debt level, and its dramatic boost to net income may help to explain the unusually high ROE as well.
Resilience Despite 2025 Setback: Strong Margins, High ROE, and Analyst Optimism Drive
Docebo Inc. (NASDAQ: DCBO) offers a cloud- and AI-based learning management system. Shares of the company have been hammered early in 2025 by lower-than-expected forward revenue guidance amid customer downgrades.
Still, the company's platform is in demand, it has solid margins, and it beat analyst expectations on both top- and bottom-line performance in the latest quarter.
Docebo's ROE of 50.2% also may be an indicator that it has the capacity to continue to generate strong revenues as the e-learning space keeps growing. It carries minimal debt relative to equity, with a debt-to-equity ratio of just 0.01, ensuring financial stability as long as it retains customers and adapts to the evolving needs of LMS users.
Wall Street analysts are optimistic that Docebo will be able to do just that. Ten out of 11 analysts covering the company rate it as a Buy.
High ROE, Tariff Benefits, and Analyst Price Target Suggest Hefty Upside
A third high-ROE company—and another favored by analysts—is Century Aluminum Co. (NASDAQ: CENX), which produces aluminum products primarily in the United States. More than either of the companies above, Century is likely to benefit from continued Trump administration tariffs on aluminum and other resources.
Indeed, the company's strong position and domestic base of operations could see it double or even triple profits should the aluminum tariff environment remain unchanged. Of course, extreme volatility in U.S. tariffs has been a hallmark of 2025 thus far, so this is not a guarantee.
Century's ROE of 13.4% suggests impressive profitability and indicators that it may be undervalued. The firm's price-to-sales ratio is a modest 0.8, for instance.
As of March 11, CENX stock had already risen just about 61% in the last year, but several analysts expect it to continue rising. With a consensus price target of $24.33, analysts rating Century predict it could rise by more than 34% above current levels.
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