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4 Stocks With Solid Net Profit Margin for Strong Returns
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Investors prefer to put their money in businesses that reap profits on a regular basis. In order to gauge the extent of profits, there is no better metric than net profit margin.
A higher net margin reflects a company’s efficiency in converting sales into actual profits. M/I Homes (MHO - Free Report) , EZCORP (EZPW - Free Report) , Encore Wire Corporation (WIRE - Free Report) and Tecnoglass Inc. (TGLS - 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, the 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's value.
Moreover, a higher net profit margin compared with its peers provides the 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 discuss our four picks from the 35 stocks that qualified the screen:
M/I Homes is one of the nation's leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes to first-time, move-up, empty-nester and luxury buyers. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up to $12.40 per share from $11.12 30 days ago. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.
EZCORP is engaged in establishing, acquiring, and operating pawnshops, which function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for EZCORP’s fiscal 2023 earnings has been revised upward to 85 cents per share from 75 cents in the past seven days. EZPW surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 71.7%.
Encore Wire is a low-cost manufacturer of copper electrical building wire and cable. The company is a significant supplier of both residential wires for interior electrical wiring in homes, apartments and manufactured housing, as well as building wires for electrical distribution in commercial and industrial buildings. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate of $22.84 per share for Encore Wire’s current-year earnings has moved 15.6% north in the past 30 days. WIRE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 93.1%.
Tecnoglass is engaged in manufacturing and selling architectural glass and windows and aluminum products for the residential and commercial construction industries. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Tecnoglass’ current-year earnings has moved 28 cents north to $4.11 per share in the past seven days. TGLS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 22.7%.
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 for Strong Returns
Investors prefer to put their money in businesses that reap profits on a regular basis. In order to gauge the extent of profits, there is no better metric than net profit margin.
A higher net margin reflects a company’s efficiency in converting sales into actual profits. M/I Homes (MHO - Free Report) , EZCORP (EZPW - Free Report) , Encore Wire Corporation (WIRE - Free Report) and Tecnoglass Inc. (TGLS - 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, the 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's value.
Moreover, a higher net profit margin compared with its peers provides the 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 discuss our four picks from the 35 stocks that qualified the screen:
M/I Homes is one of the nation's leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes to first-time, move-up, empty-nester and luxury buyers. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up to $12.40 per share from $11.12 30 days ago. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.
EZCORP is engaged in establishing, acquiring, and operating pawnshops, which function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for EZCORP’s fiscal 2023 earnings has been revised upward to 85 cents per share from 75 cents in the past seven days. EZPW surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 71.7%.
Encore Wire is a low-cost manufacturer of copper electrical building wire and cable. The company is a significant supplier of both residential wires for interior electrical wiring in homes, apartments and manufactured housing, as well as building wires for electrical distribution in commercial and industrial buildings. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate of $22.84 per share for Encore Wire’s current-year earnings has moved 15.6% north in the past 30 days. WIRE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 93.1%.
Tecnoglass is engaged in manufacturing and selling architectural glass and windows and aluminum products for the residential and commercial construction industries. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Tecnoglass’ current-year earnings has moved 28 cents north to $4.11 per share in the past seven days. TGLS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 22.7%.
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/.