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4 Stocks With Solid Net Profit Margin to Boost Portfolio Return
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The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. Arch Resources (ARCH - Free Report) , International Game Technology (IGT - Free Report) , Old Second Bancorp (OSBC - Free Report) and Lantheus Holdings (LNTH - Free Report) boast solid net profit margins.
Net Profit Margin = Net profit/Sales * 100.
In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength of a company’s operations and its cost-control measures.
Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance a business’ value.
Moreover, a higher net profit margin compared with its peers provides a company with a competitive edge.
Pros and Cons
Net profit margin helps investors gain clarity on a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.
However, net profit margin, as an investment criterion, has its share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.
In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Furthermore, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective while analyzing a company’s performance.
The Winning Strategy
A healthy net profit margin and solid EPS growth are the two most sought-after elements in a business model.
Apart from these, we have added a few criteria to ensure maximum returns from this strategy.
Screening Parameters
Net Margin 12 months – Most Recent (%) greater than equal to 0: High net profit margin indicates solid profitability.
Percentage Change in EPS F(0)/(F-1) greater than equal to 0: It indicates earnings growth.
Average Broker Rating (1-5) equal to 1: A rating of #1 indicates brokers’ extreme bullishness on the stock.
Zacks Rank less than or equal to 2: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environments. You can see the complete list of today’s Zacks #1 Rank stocks here.
VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here we have picked four stocks — Arch Resources, International Game Technology, Old Second Bancorp and Lantheus Holdings — from the 28 stocks that qualified the screen:
Arch Resources is one of the largest coal producers in the United States, operating nine mines across the major coal basins of the country. The locations of its mines and access to export facilities enable the company to ship coal worldwide. Arch Resources currently sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Arch Resources’ 2023 earnings has been revised upward to $46.10 per share from $39.21 in the past 30 days. ARCH surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 4.1%.
International Game Technology is a gaming company. The company is engaged in the design, development, manufacture and marketing of casino-style gaming equipment, systems technology, and game content. The company sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for International Game Technology’s 2023 earnings has been revised upward by a penny to $1.49 per share in the past 30 days. IGT surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 115.8%.
Old Second Bancorp provides full-banking services, including the customary consumer and commercial products and services that banks provide. At present, the stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate of $2.21 for Old Second Bancorp’s current-year earnings has moved 19 cents north in the past seven days. OSBC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 12%
Lantheus Holdings is involved in developing, manufacturing, selling and distributing diagnostic medical imaging agents and products for the diagnosis of cardiovascular and other diseases. It serves hospitals, clinics, group practices, integrated delivery networks, group purchasing organizations, radiopharmacies and wholesalers. The stock carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for Lantheus Holdings’ 2023 earnings has been revised upward to $4.25 per share from $3.47 in the past 30 days. LNTH surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 51.1%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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4 Stocks With Solid Net Profit Margin to Boost Portfolio Return
The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. Arch Resources (ARCH - Free Report) , International Game Technology (IGT - Free Report) , Old Second Bancorp (OSBC - Free Report) and Lantheus Holdings (LNTH - Free Report) boast solid net profit margins.
Net Profit Margin = Net profit/Sales * 100.
In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength of a company’s operations and its cost-control measures.
Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance a business’ value.
Moreover, a higher net profit margin compared with its peers provides a company with a competitive edge.
Pros and Cons
Net profit margin helps investors gain clarity on a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.
However, net profit margin, as an investment criterion, has its share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.
In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Furthermore, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective while analyzing a company’s performance.
The Winning Strategy
A healthy net profit margin and solid EPS growth are the two most sought-after elements in a business model.
Apart from these, we have added a few criteria to ensure maximum returns from this strategy.
Screening Parameters
Net Margin 12 months – Most Recent (%) greater than equal to 0: High net profit margin indicates solid profitability.
Percentage Change in EPS F(0)/(F-1) greater than equal to 0: It indicates earnings growth.
Average Broker Rating (1-5) equal to 1: A rating of #1 indicates brokers’ extreme bullishness on the stock.
Zacks Rank less than or equal to 2: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environments. You can see the complete list of today’s Zacks #1 Rank stocks here.
VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.
Here we have picked four stocks — Arch Resources, International Game Technology, Old Second Bancorp and Lantheus Holdings — from the 28 stocks that qualified the screen:
Arch Resources is one of the largest coal producers in the United States, operating nine mines across the major coal basins of the country. The locations of its mines and access to export facilities enable the company to ship coal worldwide. Arch Resources currently sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Arch Resources’ 2023 earnings has been revised upward to $46.10 per share from $39.21 in the past 30 days. ARCH surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 4.1%.
International Game Technology is a gaming company. The company is engaged in the design, development, manufacture and marketing of casino-style gaming equipment, systems technology, and game content. The company sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for International Game Technology’s 2023 earnings has been revised upward by a penny to $1.49 per share in the past 30 days. IGT surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 115.8%.
Old Second Bancorp provides full-banking services, including the customary consumer and commercial products and services that banks provide. At present, the stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate of $2.21 for Old Second Bancorp’s current-year earnings has moved 19 cents north in the past seven days. OSBC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 12%
Lantheus Holdings is involved in developing, manufacturing, selling and distributing diagnostic medical imaging agents and products for the diagnosis of cardiovascular and other diseases. It serves hospitals, clinics, group practices, integrated delivery networks, group purchasing organizations, radiopharmacies and wholesalers. The stock carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for Lantheus Holdings’ 2023 earnings has been revised upward to $4.25 per share from $3.47 in the past 30 days. LNTH surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 51.1%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks' portfolios and strategies are available at: https://www.zacks.com/performance/.