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The primary motive of investors is to earn maximum returns from his stakes. Thus, they are always on the lookout for companies, which are minting money in heaps.
Net profit margin is the most effective way to measure a company’s profitability. A proper analysis of the same shows how well a company is run and the headwinds dogging it.
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, net profit margin can turn out to be a potent point of reference to gauge the strength in a company operations and 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 that eventually add to the value of the business.
Moreover, a higher net profit margin compared to its peers gives the company 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 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 environment.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 are six of the 25 stocks that qualified the screen:
North American Construction Group Ltd. (NOA - Free Report) is involved primarily in providing services related to mining and heavy construction. The stock has a Zacks Rank of 1 and a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings has been reaffirmed at $1.35 in the past 30 days.
Domiciled in Oak Brook, IL, Great Lakes Dredge & Dock Corp. (GLDD - Free Report) provides dredging services in the United States and internationally. The stock is a Zacks #1 Ranked player and has a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings of 68 cents has been reiterated in the past 30 days.
Based in Loudon, TN, Malibu Boats, Inc. (MBUU - Free Report) operates as a designer, manufacturer and marketer of sport boats primarily in the United States. The stock has a Zacks Rank #1 and a VGM Score of A. Further, the Zacks Consensus Estimate for fiscal 2019 earnings has been stable at $3.64 in the past 30 days.
New York, NY-based Xcel Brands Inc. (XELB - Free Report) operates as a brand management company focused on the acquisition, design, and licensing, marketing and retail sales of consumer brands including apparel, footwear and sporting goods. The stock is a #1 Ranked company and has a VGM Score of A. Further, the Zacks Consensus Estimate for 2019 earnings of 40 cents has been unaltered in the past 30 days.
Headquartered in Bermuda, Argo Group International Holdings, Ltd. underwrites specialty insurance and reinsurance products in the property and casualty markets. The stock has a Zacks Rank #1 and a VGM Score of B. Further, the Zacks Consensus Estimate for 2019 earnings has been constant at $4.27 in the past 30 days.
St. George, UT-headquartered SkyWest, Inc. (SKYW - Free Report) operates a regional airline in the United States. The stock has a Zacks Rank #2 and an attractive VGM Score of A. The Zacks Consensus Estimate of $6.09 for 2019 earnings has been flat over the past 30 days.
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.
Image: Bigstock
6 Top Stocks With Impressive Net Profit Margin
The primary motive of investors is to earn maximum returns from his stakes. Thus, they are always on the lookout for companies, which are minting money in heaps.
Net profit margin is the most effective way to measure a company’s profitability. A proper analysis of the same shows how well a company is run and the headwinds dogging it.
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, net profit margin can turn out to be a potent point of reference to gauge the strength in a company operations and 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 that eventually add to the value of the business.
Moreover, a higher net profit margin compared to its peers gives the company 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 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 environment.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 are six of the 25 stocks that qualified the screen:
North American Construction Group Ltd. (NOA - Free Report) is involved primarily in providing services related to mining and heavy construction. The stock has a Zacks Rank of 1 and a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings has been reaffirmed at $1.35 in the past 30 days.
Domiciled in Oak Brook, IL, Great Lakes Dredge & Dock Corp. (GLDD - Free Report) provides dredging services in the United States and internationally. The stock is a Zacks #1 Ranked player and has a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings of 68 cents has been reiterated in the past 30 days.
Based in Loudon, TN, Malibu Boats, Inc. (MBUU - Free Report) operates as a designer, manufacturer and marketer of sport boats primarily in the United States. The stock has a Zacks Rank #1 and a VGM Score of A. Further, the Zacks Consensus Estimate for fiscal 2019 earnings has been stable at $3.64 in the past 30 days.
New York, NY-based Xcel Brands Inc. (XELB - Free Report) operates as a brand management company focused on the acquisition, design, and licensing, marketing and retail sales of consumer brands including apparel, footwear and sporting goods. The stock is a #1 Ranked company and has a VGM Score of A. Further, the Zacks Consensus Estimate for 2019 earnings of 40 cents has been unaltered in the past 30 days.
Headquartered in Bermuda, Argo Group International Holdings, Ltd. underwrites specialty insurance and reinsurance products in the property and casualty markets. The stock has a Zacks Rank #1 and a VGM Score of B. Further, the Zacks Consensus Estimate for 2019 earnings has been constant at $4.27 in the past 30 days.
St. George, UT-headquartered SkyWest, Inc. (SKYW - Free Report) operates a regional airline in the United States. The stock has a Zacks Rank #2 and an attractive VGM Score of A. The Zacks Consensus Estimate of $6.09 for 2019 earnings has been flat over the past 30 days.
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.