Forget P/E – This Overlooked Metric Reveals the Real Winners

Buffett Swears By It

April 10, 2025

Hello Investor,

It’s not just revenue growth. Or a flashy product. Or even a massive market opportunity.

The true winners — the kind of stocks that quietly 10x over a decade — have one thing in common:

They earn exceptional returns on every dollar they reinvest back into the business.

This is the single most overlooked metric in long-term investing. Most retail investors ignore it. But billion-dollar hedge funds, private equity firms, and even Warren Buffett pay close attention.

Today, we’re breaking it down in plain English. What it means, how to spot it, and how you can use it to find future compounders before the crowd does.

🧮 The Metric No One Talks About: ROIC

Most investors start with P/E, EPS, or revenue growth. But elite businesses have a secret sauce: they earn high returns on every dollar they reinvest.

That’s what ROIC – Return on Invested Capital – measures.

Warren Buffett once said,

“The best business is one that can deploy large amounts of capital at very high rates of return.”

Here’s why ROIC matters:

  • It shows how efficiently a business reinvests profits.

  • It filters out businesses with unsustainable or low-quality growth.

  • It’s often a predictor of durability, moats, and long-term outperformance.

📌 How to Spot High-ROIC Stocks Fast

You don’t need a CFA or a spreadsheet. Just look at one simple number on sites like [Tool Resource Name].

  • Above 15%? That’s elite.

  • Sustained over 5+ years? You’ve likely found a capital compounding machine.

  • Paired with revenue growth? That’s your signal to dig deeper.

🧠Companies like Mastercard, Apple, and Moody’s had high ROIC before they became household names.

⚡ Where to Check ROIC in Seconds (Without Digging Through Filings)

We recommend using FinChat.io — a clean, fast, and free tool where you can plug in any ticker and instantly see:

  • ROIC trends over 5–10 years

  • Gross and operating margins (moat indicators)

  • Side-by-side comparisons with peers

📈 Example: Plug in $MSFT, $MCO, or $V and look at the ROIC charts. You’ll quickly see why institutions love these names.

Try it out for your current holdings. You might be surprised which stocks are quietly compounding… and which are silently destroying value.

🛠️ How to Use ROIC in Your Portfolio

Here’s how we recommend using this metric:

  • For long-term investors: Make ROIC your first filter before diving into deeper research.

  • For portfolio audits: Rank your current holdings by ROIC and consider trimming the laggards.

  • For moat hunters: Focus on consistent, high ROIC and wide margins.

Final Thought

Every serious investor should know this number. Once you start filtering stocks by ROIC, you’ll wonder how you ever invested without it.

Stay curious, stay compound-minded.

– StocksTrades.AI Newsletter