High ROE Low Debt Stocks: 10 Quality Companies for Long-Term Investors
Warren Buffett once explained his stock-picking filter in characteristically simple terms: "I look for businesses that earn high returns on equity while employing little or no debt." A company generating 30%+ ROE with minimal leverage is doing something genuinely special. The returns are driven by competitive advantages, not financial engineering.
The distinction matters enormously. A company can artificially inflate ROE by taking on massive debt (which reduces the equity denominator in the ROE calculation). But when a company earns 40%+ ROE with a debt-to-equity ratio below 0.5, the returns are real. They reflect pricing power, operational efficiency, or both.
Here are 10 companies from the Moatifi screener that earn exceptional returns without relying on leverage.
1. NVIDIA (NVDA)
ROE: 49% | ROIC: 42% | D/E: 0.37
NVIDIA earns nearly 50 cents on every dollar of equity with minimal debt. These returns are not driven by GPU hardware margins alone (though those are excellent). The real driver is the CUDA ecosystem: over 4 million developers building on NVIDIA's platform, every major AI framework optimized for CUDA first, and a decade of accumulated tooling and libraries.
The low leverage means these returns are sustainable through business cycles. A company earning 49% ROE on a clean balance sheet can weather downturns that would break a highly leveraged competitor.
The non-obvious insight: NVIDIA's returns have actually accelerated as AI adoption increases. More AI spending means more demand for CUDA-optimized hardware, which reinforces the ecosystem, which drives higher margins. This is a moat that widens with industry growth.
2. Texas Pacific Land (TPL)
ROE: 45% | ROIC: 56% | D/E: 0.00
Zero debt. 45% ROE. 56% ROIC. These numbers look like a misprint, but they reflect TPL's unique business model. The company owns approximately 880,000 acres of land in the Permian Basin and collects royalties and water fees from operators who drill on it. The land requires virtually zero capital expenditure to maintain.
TPL is the purest example of a capital-light moat business. The asset (West Texas land with mineral rights) cannot be replicated, moved, or competed away. Every dollar of revenue falls almost directly to the bottom line because there are no factories to maintain, no employees to train, and no inventory to carry.
Charlie Munger would recognize this as the ideal business: one where the competitive advantage requires no ongoing capital to sustain.
3. Paychex (PAYX)
ROE: 42% | ROIC: 30% | D/E: 0.46
Paychex processes payroll for over 700,000 businesses. The switching cost moat is the engine: once a company integrates its payroll, tax filing, and benefits administration with Paychex, the risk and hassle of switching to a competitor vastly outweighs any potential cost savings. One botched payroll cycle triggers employee complaints, potential lawsuits, and regulatory scrutiny.
The result is customer retention that enables 42% ROE on conservative leverage. Paychex does not need debt to generate exceptional returns because the recurring revenue stream is so predictable and the capital requirements so modest. The business essentially converts switching costs into annuity-like cash flows.
4. Adobe (ADBE)
ROE: 40% | ROIC: 35% | D/E: 0.38
Adobe's Creative Cloud subscription model produces high returns with minimal leverage. The moat operates at multiple levels: proprietary file formats (.PSD, .AI, .INDD) that require Adobe software to edit, workflow integration across the Creative Suite, and years of professional skill investment that make switching painful.
The subscription transition (from perpetual licenses to monthly payments) was both a revenue model improvement and a moat deepener. Under perpetual licensing, customers could skip upgrade cycles. Under subscriptions, Adobe maintains continuous engagement and adds features (like Firefly AI image generation) that increase the product's value and the cost of leaving.
Adobe's 40% ROE reflects a business where nearly every customer renewal is essentially automatic, and price increases are absorbed because the alternatives are worse.
5. lululemon (LULU)
ROE: 36% | ROIC: 40% | D/E: Low
A 40% ROIC in retail is remarkable. Most retailers earn single-digit returns on capital because the industry is brutally competitive and commoditized. lululemon earns 40% because it is not competing on the same axis. The brand moat allows the company to charge $128 for yoga pants when functional alternatives cost $30.
The non-obvious aspect: lululemon's moat is not just brand perception. It is community. The company builds local relationships through in-store yoga classes, ambassador programs, and running clubs. This creates an emotional connection and social identity that online competitors cannot replicate. Customers are not buying fabric; they are buying membership in a community.
Low leverage means the returns are genuine and sustainable through economic cycles. Even during consumer downturns, aspirational brand customers tend to cut elsewhere before giving up their preferred brands.
6. Microsoft (MSFT)
ROE: 37% | ROIC: 32%
Microsoft's cloud transition strengthened both its returns profile and its balance sheet. Enterprise customers pay monthly subscriptions for mission-critical software (Office 365, Azure, Teams), generating enormous free cash flow with a 32% FCF margin. The switching costs in enterprise software are measured in tens of millions of dollars and years of disruption.
Microsoft uses moderate leverage, but the returns are overwhelmingly driven by the business's competitive position rather than financial structure. Azure grew from a distant third in cloud computing to a strong second behind AWS, and the enterprise software ecosystem (Active Directory, SharePoint, Outlook) creates a multi-layered switching cost moat.
Satya Nadella's capital allocation deserves recognition. Rather than using debt to fund shareholder returns, he invested in cloud infrastructure and AI (including the OpenAI partnership) while maintaining a strong balance sheet. The result is a business earning 37% ROE that is still accelerating its competitive position.
7. Deckers Outdoor (DECK)
ROE: 34% | ROIC: 34% | D/E: Low
Deckers, the company behind UGG and HOKA, is quietly building a portfolio of powerful brands. UGG has maintained relevance for over two decades (a rarity in fashion footwear). HOKA has become one of the fastest-growing performance running brands, competing with Nike and Adidas in the premium segment.
What makes DECK stand out in this list is the combination of brand-driven pricing power with disciplined financial management. A clean balance sheet in consumer goods is unusual; most brand companies use leverage to fund marketing spend and acquisitions. Deckers generates 34% returns on both equity and invested capital without needing to borrow.
8. Old Dominion Freight Line (ODFL)
ROE: 29% | ROIC: 28% | D/E: Low
Old Dominion proves that exceptional returns without leverage are possible even in capital-intensive industries. LTL (less-than-truckload) shipping requires hundreds of service centers, thousands of trucks, and decades of network density optimization. ODFL's network is so efficient that the company earns 28% ROIC in an industry where most competitors struggle to earn their cost of capital.
The moat is route density: more shipments per route means lower cost per shipment, which enables better pricing, which attracts more shipments. A new entrant would need to build a nationwide network simultaneously (building it one market at a time does not work because shippers need nationwide coverage), creating a structural barrier to entry.
9. Fastenal (FAST)
ROE: 33% | ROIC: 29% | D/E: Low
Fastenal's distribution network for industrial supplies creates a cost and convenience moat. With over 1,600 branch locations and growing on-site vending machine presence inside customer facilities, Fastenal has become the default source for fasteners, safety equipment, and other maintenance supplies at manufacturing plants across North America.
The vending machine strategy is particularly clever: placing Fastenal machines inside customer factories makes switching practically impossible because the product is physically embedded in the customer's operations. This creates switching costs on top of distribution advantages, explaining the 33% ROE and 29% ROIC on a nearly debt-free balance sheet.
10. Garmin (GRMN)
ROE: 18% | ROIC: 14% | D/E: Very Low
Garmin's returns are more moderate than others on this list, but the company stands out for its fortress balance sheet (virtually zero debt, substantial cash reserves) and consistent profitability across economic cycles.
What makes Garmin interesting is its diversification moat. The company dominates niche markets in aviation (flight instruments and navigation), marine (chartplotters and sonar), fitness (running watches), and outdoor recreation (handheld GPS). Each segment has its own competitive position, and the company's engineering expertise transfers across all of them.
Garmin rarely appears on "best stocks" lists because the returns are not spectacular. But consistent 14-18% returns on a debt-free balance sheet for 20+ years, with market leadership in multiple defensible niches, makes it exactly the kind of quiet compounder that Buffett-style investors appreciate.
What These Companies Have in Common
The Returns Are Real, Not Engineered
Every company on this list earns excellent returns primarily through competitive advantages, not financial leverage. This creates less risk in downturns (no debt covenants to worry about), more flexibility to invest opportunistically when competitors struggle, and sustainable returns that can compound for decades.
They Can Reinvest at High Rates
The most valuable high-ROE companies can reinvest their earnings at similarly high rates. NVIDIA reinvests in next-generation GPU architectures and CUDA ecosystem development. Adobe reinvests in AI features like Firefly. When a company earning 40% ROE can reinvest at similar rates, the compounding becomes extraordinary. This is the mechanism Buffett describes as "one dollar of retained earnings creating more than one dollar of market value."
Free Cash Flow Matches Reported Earnings
High ROE means nothing if it does not convert to cash. All 10 companies on this list generate strong, consistent free cash flow. This is the ultimate test of earnings quality: if reported profits do not show up as cash in the bank, something is wrong.
How to Screen for High ROE, Low Debt Stocks
On Moatifi, every candidate includes 5-year average ROE and ROIC data, plus management scores that factor in balance sheet conservatism. Browse the candidates page, check the financial metrics prominently displayed for each stock, and read the detailed analysis for a full breakdown of competitive advantages and risks.
The combination of high ROE with low debt is the clearest quantitative signal that a company possesses a genuine competitive advantage. These businesses earn exceptional returns through the quality of their operations, and for long-term investors, this combination is the foundation of a great portfolio.