Daily Scoop🍨: VRSN (High ROIC) And Nvidia (NVDA) & The Other ROIC Stocks

$Texas Pacific Land(TPL)$ 

$VeriSign(VRSN)$ 

A ‘high ROIC’ example

If we were to screen the components of the S&P 500 for five years using only the numbers in the companies’ financial statements over the past five years, VeriSign Inc.

VRSN

-2.17%

would top the list, with an average ROIC of 224.9% according to data provided by FactSet. For its most recently reported full fiscal year, VeriSign’s unadjusted ROIC was 372.7%.

Breaking that down, the numerator was VeriSign’s net income of $817.6 million for 2023, divided by the year’s average invested capital of $219.35 million. The average invested capital included negative common equity of $1.56 billion. And that negative equity number reflected write-downs decades earlier, including “a noncash charge of $9.9 billion in the second quarter of 2001 related to write downs of goodwill due to changes in market conditions for acquisitions made with [VeriSign’s] common stock” that the company reported in its annual 10-K report for that year.

So VeriSign’s still-low invested capital supports its high current ROIC. On an adjusted basis, the company’s ROIC was 4.4% for 2023, with a five-year average of 3.9%, according to the data provided by New Constructs.

This is not to bash VeriSign — the company follows generally accepted accounting principles (GAAP) in its financial statements. There are other measures of operating performance that can attract investors, including Berkshire Hathaway and its CEO Warren Buffett, who have accumulated a large stake in VeriSign’s shares. Berkshire’s attraction to the stock might be VeriSign’s recent profit margins, which rank near the highest among companies in the S&P 500.

Screening the S&P 500 for highest adjusted ROIC

New Constructs provided ROIC data for the past five reported fiscal years for the S&P 500. So in most cases, the data runs through 2023. For about 20% of the S&P 500, fiscal years don’t match the calendar, so some of the ROIC figures are for more recent periods.

Companies with negative average invested capital for any of the past five fiscal years were excluded from the screen.

Here are the 10 companies in the S&P 500 with the highest five-year average ROIC, as calculated by The New Constructs: