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Net profit margin is what an entrepreneur ultimately aims for. A higher profit margin implies that a company is more efficient in converting sales to actual profit. In fact, it can turn out to be an accurate point of reference to gauge the potential of a company’s operations and cost-control measures.
Net Profit Margin = Net profit /Sales * 100.
In simple terms, net income is the residual of all revenues and gains over all expenses and losses during a particular period. It can also be defined as the net increase in shareholder’s equity, which the company can retain as earnings or distribute among shareholders as dividend.
Moreover, the strength in the metric not only attracts new investors but also draws well-skilled employees who eventually add to the value of the business.
Moreover, a higher net profit margin as compared to peers lends 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 own 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.
Moreover, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Further, 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 to analyze 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 environment.
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 are five of the 19 stocks that qualified the screen:
Chicago-based Enova International, Inc. (ENVA - Free Report) is a provider of online financial services. The Zacks Consensus Estimate for fiscal 2018 earnings has increased 12.9% to $2.27 per share in the last 30 days. The stock has a Zacks Rank #1 and VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Anaheim, CA, Willdan Group Inc. (WLDN - Free Report) is a provider of professional technical and consulting services to utilities, private industry and public agencies at all government levels. The Zacks Consensus Estimate for fiscal 2018 earnings has remained steady at $1.57 per share over the last 30 days. The stock sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A.
AMN Healthcare Services Inc (AMN - Free Report) provides physician and nursing recruitment and placement services for hospitals, clinics, medical centers, government facilities, and other healthcare organizations in travel or permanent assignments. The stock sports a Zacks Rank #2 and has VGM Score of A. Moreover, the Zacks Consensus Estimate for 2018 earnings has increased by 4% to $3.38 per share in the last 30 days.
Chicago-based SP Plus Corporation (SP - Free Report) provides professional parking, ground transportation, facility maintenance, security, and event logistics services to property owners and managers in the real estate industry. The stock sports a Zacks Rank #1 and has a VGM Score of B. Further, the Zacks Consensus Estimate for 2018 earnings has remained steady at $2.21 over the last 30 days.
Headquartered in Atlanta, GA, PRGX Global Inc. provides audit, analytics and advisory services to improve client financial performance. The Zacks Consensus Estimate for 2018 earnings has increased three cents to 22 cents per share in the last 30 days. The stock has a Zacks Rank #1 and VGM Score of B.
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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Top 5 Stocks With Impressive Net Profit Margin
Net profit margin is what an entrepreneur ultimately aims for. A higher profit margin implies that a company is more efficient in converting sales to actual profit. In fact, it can turn out to be an accurate point of reference to gauge the potential of a company’s operations and cost-control measures.
Net Profit Margin = Net profit /Sales * 100.
In simple terms, net income is the residual of all revenues and gains over all expenses and losses during a particular period. It can also be defined as the net increase in shareholder’s equity, which the company can retain as earnings or distribute among shareholders as dividend.
Moreover, the strength in the metric not only attracts new investors but also draws well-skilled employees who eventually add to the value of the business.
Moreover, a higher net profit margin as compared to peers lends 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 own 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.
Moreover, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Further, 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 to analyze 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 environment.
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 are five of the 19 stocks that qualified the screen:
Chicago-based Enova International, Inc. (ENVA - Free Report) is a provider of online financial services. The Zacks Consensus Estimate for fiscal 2018 earnings has increased 12.9% to $2.27 per share in the last 30 days. The stock has a Zacks Rank #1 and VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Anaheim, CA, Willdan Group Inc. (WLDN - Free Report) is a provider of professional technical and consulting services to utilities, private industry and public agencies at all government levels. The Zacks Consensus Estimate for fiscal 2018 earnings has remained steady at $1.57 per share over the last 30 days. The stock sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A.
AMN Healthcare Services Inc (AMN - Free Report) provides physician and nursing recruitment and placement services for hospitals, clinics, medical centers, government facilities, and other healthcare organizations in travel or permanent assignments. The stock sports a Zacks Rank #2 and has VGM Score of A. Moreover, the Zacks Consensus Estimate for 2018 earnings has increased by 4% to $3.38 per share in the last 30 days.
Chicago-based SP Plus Corporation (SP - Free Report) provides professional parking, ground transportation, facility maintenance, security, and event logistics services to property owners and managers in the real estate industry. The stock sports a Zacks Rank #1 and has a VGM Score of B. Further, the Zacks Consensus Estimate for 2018 earnings has remained steady at $2.21 over the last 30 days.
Headquartered in Atlanta, GA, PRGX Global Inc. provides audit, analytics and advisory services to improve client financial performance. The Zacks Consensus Estimate for 2018 earnings has increased three cents to 22 cents per share in the last 30 days. The stock has a Zacks Rank #1 and VGM Score of B.
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 »