A Holistic Look Beyond ROE or PE Might Be Good For Our Long Term Investing

For long-term investing, it is usually not about just one metric like ROE (Return on Equity) or P/E (Price-to-Earnings ratio). Instead, investors often look at a combination of factors to form a holistic view of a company’s quality, growth potential, and valuation.

In this article, I would like to share how I would break it down:

1. Quality of the Business

ROE (Return on Equity): Measures how efficiently a company uses shareholders’ money to generate profits. High and consistent ROE (say, >15%) can signal strong competitive advantages (a “moat”).

ROIC (Return on Invested Capital): Similar to ROE but accounts for debt as well. Often considered a cleaner measure of management quality.

Margins (Gross/Operating/Net): Strong and stable margins often point to pricing power.

ROE/ROIC tell you about quality and efficiency, but they do not say if the stock is cheap or expensive.

2. Valuation

P/E (Price-to-Earnings): Useful for mature, stable companies. But a low P/E could mean undervalued—or a “value trap.”

PEG (Price/Earnings-to-Growth): Adjusts P/E for growth rate. A PEG around 1 is often considered “fairly valued.”

EV/EBITDA, P/B, P/S: Sometimes more relevant depending on the industry (banks = P/B, SaaS = EV/Sales).

Valuation metrics help you avoid overpaying, even for great businesses.

3. Growth & Durability

Revenue & EPS Growth: Is it consistent and sustainable?

Market Share & Industry Trends: A strong secular trend (e.g., cloud, AI, renewables) can support long-term growth.

4. Financial Strength

Debt Levels (D/E ratio, Interest Coverage): Can they weather downturns?

Free Cash Flow (FCF): A steady FCF stream supports dividends, buybacks, reinvestment.

5. Qualitative Factors

• Management quality and track record.

• Competitive advantages (moats): Brand, network effects, patents, scale.

• Industry position & risks.

How We Can Put It In Practice

Many long-term investors use a two-step lens:

• Quality first (ROE, ROIC, margins, moat).

• Then valuation (P/E, PEG, EV/EBITDA).

Think of it like “Is this a great company?” → then “Am I paying a fair price?”

Here Are Some Example That I Have Done Recently. Hope It Helps

$Coca-Cola(KO)$ : High ROE, steady cash flows, but P/E might look high compared to slow growth.

$NVIDIA(NVDA)$ : ROE and ROIC are strong, growth prospects are huge, but valuation (P/E/PEG) is rich — you need conviction in long-term secular growth.

In the next section, we build a practical checklist/scorecard you can use as a screening tool for long-term investing. Think of it as a blend of quality + growth + valuation + financial health + moat.

Here is a weighted model that adds up to 100 points. You can adjust the weights based on your style (value-oriented vs growth-oriented).

Stock Screening Scorecard (100 points total)

1. Quality (30 pts)

2. Growth (25 pts)

3. Valuation (20 pts)

4. Financial Strength (15 pts)

5. Moat & Management (10 pts)

Interpretation:

• 80–100 = Excellent long-term candidate (great business at fair price).

• 60–79 = Worth considering but dig deeper (may be fairly valued but not a steal).

• <60 = Avoid / speculative unless you have a specific thesis.

Here is one example that I did for $Microsoft(MSFT)$ (as of 2025).

• ROE/ROIC strong, margins wide (30/30),

• Growth solid in cloud (20/25),

• Valuation slightly premium (12/20),

• Financial strength excellent (15/15),

• Moat/management strong (10/10).

• Score ≈ 87 → Excellent candidate.

Below Is How We Can Build A Template To Do Our Own Scoring

Summary

Long-term investing is guided by a time horizon of many years, often prioritizing sustainable growth and intrinsic value over short-term gains. Your investment strategy should align with your goals, risk tolerance, and the time before you need the money.

For stock selection, relying on a single metric is insufficient. Investors typically use a combination of factors. Both Return on Equity (ROE) and the Price-to-Earnings (P/E) ratio are important:

• ROE (Net Income / Shareholders' Equity) is a profitability ratio, indicating how efficiently a company uses shareholder funds to generate profit. A consistently high ROE (often 10-20% or higher, depending on the industry) suggests strong management and a competitive advantage.

• P/E Ratio (Share Price / Earnings Per Share) is a valuation ratio, showing how much investors are willing to pay for each dollar of earnings. A low P/E might indicate undervaluation, while a high P/E often suggests high growth expectations, but comparison to industry peers is essential.

A comprehensive analysis combines these with other ratios like:

• Debt-to-Equity Ratio: Measures financial leverage and risk (lower is generally better).

• Earnings Per Share (EPS) Growth: Looks for consistent earnings growth over time.

• Price/Earnings-to-Growth (PEG) Ratio: A P/E adjusted for expected growth, helping to see if a growth stock's valuation is reasonable.

Ultimately, long-term investors seek companies with strong fundamentals, a durable competitive advantage (economic moat), and competent management, ensuring the stock is purchased at a reasonable valuation.

Appreciate if you could share your thoughts in the comment section whether you think having a holistic view beyond ROE or PE would help us in our long-term investing deployment.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.