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Profitability analysis is generally used to evaluate the potential of a company’s stock. A company with high profitability has surplus sales to meet all its operating and non-operating expenses and generate attractive returns for investors.
A profitable company with weak fundamentals may fail to give a satisfying stock performance. However, several studies have indicated that a company with high profitability normally offers positive returns to its investors.
Here, we have used the concept of profitability ratios to determine how prosperous a company actually is. There are several profitability ratios, from which we have selected net income ratio. Net income ratio is the simplest and most useful profitability metric.
Net Income Ratio
Net income ratio reveals the bottom line of a company. It reflects the percentage of net income to total sales. Using net income ratio, one can measure a company’s effectiveness to clear all its operating and non-operating expenses from sales revenue alone. A higher net income ratio normally implies a company’s ability to generate ample revenue and successfully manage all its business functions.
Screening Parameters
Net income ratio is not the only indicator of future winners. As such, we have added a few additional criteria to arrive at a winning strategy.
Zacks Rank equal to #1: The Zacks Rank has proved itself to be one of the best rating systems out there. Since this screening allows only Zacks Rank #1 (Strong Buy) stocks, this is a great way to start things off. You can see the complete list of today’s Zacks #1 Rank stocks here.
12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.
12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.
% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.
Here are five of the 10 stocks that qualified the screening:
Entegris, Inc. (ENTG - Free Report) is a leading provider of materials management solutions to the microelectronics industry, including semiconductor manufacturing and disk manufacturing markets. It has an average four-quarter earnings surprise of 20.7%.
SORL Auto Parts, Inc. specializes in the development, production and distribution of different auto parts, including automotive brake systems. It has an average four-quarter earnings surprise of 7.5%.
Rice Midstream Partners LP is an energy and oil company. It has an average four-quarter earnings surprise of 37.1%.
Interval Leisure Group, Inc. IILG is a leading provider of leisure services to consumers and business-to-business customers in the vacation industry. It has an average four-quarter earnings surprise of 8.4%.
HollySys Automation Technologies, Ltd. (HOLI - Free Report) is one of the leading automation systems’ providers in the People's Republic of China. The company has an average four-quarter earnings surprise of 6.1%.
While backtesting over a two-year timeframe (September 5, 2014 to September 9, 2016), a portfolio following this strategy provided a total return of 11.2% compared with the S&P 500’s return of 7.1%. Thus, this strategy may prove profitable for those looking to beat the markets.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Profitable Stocks to Buy for Huge Returns
Profitability analysis is generally used to evaluate the potential of a company’s stock. A company with high profitability has surplus sales to meet all its operating and non-operating expenses and generate attractive returns for investors.
A profitable company with weak fundamentals may fail to give a satisfying stock performance. However, several studies have indicated that a company with high profitability normally offers positive returns to its investors.
Here, we have used the concept of profitability ratios to determine how prosperous a company actually is. There are several profitability ratios, from which we have selected net income ratio. Net income ratio is the simplest and most useful profitability metric.
Net Income Ratio
Net income ratio reveals the bottom line of a company. It reflects the percentage of net income to total sales. Using net income ratio, one can measure a company’s effectiveness to clear all its operating and non-operating expenses from sales revenue alone. A higher net income ratio normally implies a company’s ability to generate ample revenue and successfully manage all its business functions.
Screening Parameters
Net income ratio is not the only indicator of future winners. As such, we have added a few additional criteria to arrive at a winning strategy.
Zacks Rank equal to #1: The Zacks Rank has proved itself to be one of the best rating systems out there. Since this screening allows only Zacks Rank #1 (Strong Buy) stocks, this is a great way to start things off. You can see the complete list of today’s Zacks #1 Rank stocks here.
12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.
12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.
% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.
Here are five of the 10 stocks that qualified the screening:
Entegris, Inc. (ENTG - Free Report) is a leading provider of materials management solutions to the microelectronics industry, including semiconductor manufacturing and disk manufacturing markets. It has an average four-quarter earnings surprise of 20.7%.
SORL Auto Parts, Inc. specializes in the development, production and distribution of different auto parts, including automotive brake systems. It has an average four-quarter earnings surprise of 7.5%.
Rice Midstream Partners LP is an energy and oil company. It has an average four-quarter earnings surprise of 37.1%.
Interval Leisure Group, Inc. IILG is a leading provider of leisure services to consumers and business-to-business customers in the vacation industry. It has an average four-quarter earnings surprise of 8.4%.
HollySys Automation Technologies, Ltd. (HOLI - Free Report) is one of the leading automation systems’ providers in the People's Republic of China. The company has an average four-quarter earnings surprise of 6.1%.
While backtesting over a two-year timeframe (September 5, 2014 to September 9, 2016), a portfolio following this strategy provided a total return of 11.2% compared with the S&P 500’s return of 7.1%. Thus, this strategy may prove profitable for those looking to beat the markets.
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.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »