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Pick These 4 Solid Net Profit Margin Stocks for Solid Returns
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Investors eye businesses that generate 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 underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on it. EZCORP, Inc. (EZPW - Free Report) , Modine Manufacturing Company (MOD - Free Report) , Teekay Tankers Ltd. (TNK - Free Report) and Navigator Holdings Ltd. (NVGS - 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 attracts investors and draws well-skilled employees, who eventually enhance business 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 21 stocks that qualified the screen:
EZCORP is engaged in establishing, acquiring and operating pawnshops that function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for EZCORP’s fiscal 2024 earnings has been revised upward by 12.9% to $1.05 per share in the past seven days. EZCORP surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 27.7%.
Modine Manufacturing operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment. The stock carries a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate of $3.26 per share for Modine Manufacturing’s fiscal 2024 earnings has moved 22 cents north in the past seven days. MOD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 51.5%.
Teekay Tankers provides international marine transportation of crude oil. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Teekay Tankers’ 2023 earnings has been revised downward by 15 cents to $15.35 per share in the past seven days. TNK surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 14.1%.
Navigator Holdings provides international seaborne transportation and regional distribution services of liquefied petroleum gas, petrochemical gases, and ammonia for energy companies, industrial users and commodity traders. The stock has a Zacks Rank of 1 at present and a VGM Score of B.
The Zacks Consensus Estimate for Navigator Holdings’ 2023 earnings has been revised upward by a penny to $1.14 per share in the past 60 days. NVGS surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 0.1%.
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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Pick These 4 Solid Net Profit Margin Stocks for Solid Returns
Investors eye businesses that generate 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 underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on it. EZCORP, Inc. (EZPW - Free Report) , Modine Manufacturing Company (MOD - Free Report) , Teekay Tankers Ltd. (TNK - Free Report) and Navigator Holdings Ltd. (NVGS - 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 attracts investors and draws well-skilled employees, who eventually enhance business 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 21 stocks that qualified the screen:
EZCORP is engaged in establishing, acquiring and operating pawnshops that function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for EZCORP’s fiscal 2024 earnings has been revised upward by 12.9% to $1.05 per share in the past seven days. EZCORP surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 27.7%.
Modine Manufacturing operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment. The stock carries a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate of $3.26 per share for Modine Manufacturing’s fiscal 2024 earnings has moved 22 cents north in the past seven days. MOD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 51.5%.
Teekay Tankers provides international marine transportation of crude oil. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Teekay Tankers’ 2023 earnings has been revised downward by 15 cents to $15.35 per share in the past seven days. TNK surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 14.1%.
Navigator Holdings provides international seaborne transportation and regional distribution services of liquefied petroleum gas, petrochemical gases, and ammonia for energy companies, industrial users and commodity traders. The stock has a Zacks Rank of 1 at present and a VGM Score of B.
The Zacks Consensus Estimate for Navigator Holdings’ 2023 earnings has been revised upward by a penny to $1.14 per share in the past 60 days. NVGS surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 0.1%.
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/.