ROE Compared to COE Still the Best Indicator of Value

Investors and analysts measure the performance of bank holding companies by comparing return on equity (ROE) against the cost of equity capital (COE). If the ROE is higher than the COE, management is creating value. ROE less than COE, management destroys value. Value is measured by stock price to book…

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NASDAQ 100 - - Another Tech Bubble or Realistic Valuation?

In the Tech Bubble of 1999-2000, the NASDAQ 100 rose in valuation to 12.8 times its book value, while the S&P 500 increased in value to 5.1 times its book value - - OVERVALUATION.  As noted in the IDCFP article on October 24, 2016, the leading market indicator on housing…

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ROE Less COE Spread Drives Performance of S&P 500

The S&P 500 stock market average index has had a remarkable history of tracking the recovery in the return on equity (ROE) above the cost of equity (COE) for its average of 500 component companies (see Chart I).  Each time ROE has risen above COE, a bull market occurred as…

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Community Bank Stocks Driven by Spread Between ROE and COE

In a previous article, the major bull market in bank stocks of 300%, from the first quarter of 1995 to year-end 2006, was driven by the widening spread between return on equity (ROE*) and the cost of equity (COE*), as defined by IDC Financial Publishing, Inc. (IDCFP).  In the article,…

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Large Bank Stocks Driven by the Spread Between ROE and COE

The major bull market in bank stocks (KBW Index, Ticker “BKX”) from the 1st quarter of 1995 to year end 2006 of 300% was driven by the widening spread between bank return on equity (ROE*) and the cost of equity (COE**), as defined by IDC Financial Publishing, Inc. (IDC).  During…

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