What is a good return on equity?
Whether a company’s ROE is good or not will depend on the industry average. So, different figures are considered normal for different industries. For example, a good ROE for the US air transport industry might be 19%, while it could be just 5% for a renewable energy firm.
Generally, traders and investors will look for stocks that have a return on equity ratio that is similar to or above that of its competitors. For example, Delta Airlines ROE in 2018 was 28%, compared to its peer average of 19%.
Alternatively, you can compare the ROE to the long-term average of a stock index. By using this method, you’ll assume that anything below that figure is a poor ROE. If we look at the ROE of the S&P 500 compared to Delta Airlines, we see that the company was outperforming the market in 2018 – with a ROE of 28% compared to 18% for the S&P 500.