It is commonly known that the ASX is a concentrated market with large blue chip stocks making up most of the index weighting or market capitalization. A quick look at the ASX300 tells us that the top 10 stocks account for 47% of the index and the top 20 stocks account for 61% of the index, this is based on market capitalization.
But the stock market is a forward looking beast that factors in forward earnings and profits when valuing stocks. As such, I thought I would look at the most profitable stocks on the ASX 300.
Unlike the overall market where unprofitable stocks account for most of the listed companies the majority of the top 300 stocks are profitable and all of the top 10 and 20 stocks are profitable companies. With the top 10 stocks of the ASX300 accounting for 59% of ASX300 profits and the top 20 stocks account for 75% of ASX300 profits.
Given that forward earnings and profits are used by the market to determine valuations and that the concentration of ASX300 profits is greater than market capitalization. To determine the direction of the overall market. Look no further than the profitability of the largest companies on the ASX and their forward guidance.
I am a fundamentally driven investor and find it hard to identify value stocks on the ASX and for the most part believe the majority of the companies on the ASX are either fair value or over valued. But I am not expecting there to be any major market crash anytime soon, unless you get an event similar to COVID or the GFC where the forward earnings and profits of our top companies are severely impacted.
Tariffs, tax’s , and hard and soft commodity prices movements will impact earnings and profits and can result in stock price and market corrections but for a major crash to occur you would need to see the forward earnings and profits of all the top companies in out index to be servilely impacted by 30-40% or more.
Tables
| Net Profit ($B) LHS | Net Profit % RHS | |
| Top 300 | 116,690 | 100% |
| Top 10 | 67,131 | 59% |
| Top 20 | 83,082 | 75% |
| Market Cap ($B) LHS | Market cap % RHS | |
| Top 300 | 2,789,246 | 100% |
| Top 10 | 1,301,713 | 47% |
| Top 20 | 1,707,396 | 61% |
