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One of the best way to measure a stock’s potential is to use profitability analysis. It gives a fair idea of a company’s ability to generate revenues to bear its daily business expenses and at the same time offer fabulous returns to its investors.
Although a company’s stock may fail to perform well if its fundamentals are weak, multiple studies show that a profitable entity will generally ensure satisfactory returns for its investors.
In this context, we have decided to use net income ratio, the most successful profitability metric, to determine a company’s bottom-line performance.
Net Income Ratio
Profitability ratios in general are classified into gross income ratio, operating income ratio, pretax profit margin and net income ratio. Here, we have selected net income ratio in order to assess the exact level of profitability of a company.
Net income ratio is measured by dividing net income by total sales revenue. The higher the net income ratio, the better is the company’s profitability. This is because it showcases how effectively the company shells out all its business-related expenses and generates funds.
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: Only Zacks Rank #1 (Strong Buy) stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, 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 Net Income Ratio Higher than X Industry: A higher net income ratio indicates a company’s solid profitability.
12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that have displayed higher sales and net income growth in the last 12 months give a better financial performance.
% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.
Here are five of the nine stocks that qualified the screening:
FormFactor Inc. (FORM - Free Report) develops, designs, manufactures, sells and supports high performance advanced semiconductor wafer probe cards. It has an average four-quarter earnings surprise of 22%.
CryoLife Inc. aims to manufacture and distribute medical devices globally.It has an average four-quarter earnings surprise of more than 300%.
LegacyTexas Financial Group Inc. is a bank holding company. The company's holdings include LegacyTexas Bank. It has an average four-quarter earnings surprise of 3.4%.
Willdan Group, Inc. (WLDN - Free Report) is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government. It has an average four-quarter earnings surprise of 18.7%.
Stamps.com Inc. provides easy, convenient and cost-effective Internet-based anywhere in the United States and at anytime. It has an average four-quarter earnings surprise of 66.7%.
While backtesting over a two-year timeframe (November 28, 2014 to November 25, 2016), a portfolio following this strategy provided a total return of 12% compared with the S&P 500’s return of 6.4%. 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 Stocks with Solid Profitability to Focus on
One of the best way to measure a stock’s potential is to use profitability analysis. It gives a fair idea of a company’s ability to generate revenues to bear its daily business expenses and at the same time offer fabulous returns to its investors.
Although a company’s stock may fail to perform well if its fundamentals are weak, multiple studies show that a profitable entity will generally ensure satisfactory returns for its investors.
In this context, we have decided to use net income ratio, the most successful profitability metric, to determine a company’s bottom-line performance.
Net Income Ratio
Profitability ratios in general are classified into gross income ratio, operating income ratio, pretax profit margin and net income ratio. Here, we have selected net income ratio in order to assess the exact level of profitability of a company.
Net income ratio is measured by dividing net income by total sales revenue. The higher the net income ratio, the better is the company’s profitability. This is because it showcases how effectively the company shells out all its business-related expenses and generates funds.
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: Only Zacks Rank #1 (Strong Buy) stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, 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 Net Income Ratio Higher than X Industry: A higher net income ratio indicates a company’s solid profitability.
12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that have displayed higher sales and net income growth in the last 12 months give a better financial performance.
% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.
Here are five of the nine stocks that qualified the screening:
FormFactor Inc. (FORM - Free Report) develops, designs, manufactures, sells and supports high performance advanced semiconductor wafer probe cards. It has an average four-quarter earnings surprise of 22%.
CryoLife Inc. aims to manufacture and distribute medical devices globally.It has an average four-quarter earnings surprise of more than 300%.
LegacyTexas Financial Group Inc. is a bank holding company. The company's holdings include LegacyTexas Bank. It has an average four-quarter earnings surprise of 3.4%.
Willdan Group, Inc. (WLDN - Free Report) is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government. It has an average four-quarter earnings surprise of 18.7%.
Stamps.com Inc. provides easy, convenient and cost-effective Internet-based anywhere in the United States and at anytime. It has an average four-quarter earnings surprise of 66.7%.
While backtesting over a two-year timeframe (November 28, 2014 to November 25, 2016), a portfolio following this strategy provided a total return of 12% compared with the S&P 500’s return of 6.4%. 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 »