Companies with favorable efficiency levels are likely to be on investors’ radar irrespective of market conditions. This is because efficiency is the ability to transform inputs into outputs, which is a potential indicator of a company’s financial health.
Moreover, a company with a favorable efficiency level is expected to provide impressive returns as it is believed to be positively correlated with its price performance.
We have, thus, considered four popular ratios in order to find efficient companies that have the potential to provide impressive returns.
Operating Margin: This efficiency measure is the ratio of operating income over the past 12 months to sales over the same period. It measures a company’s ability to control operating expenses. Hence, a high value of the ratio may indicate that the company manages its operating expenses more efficiently than its peers.
Asset Utilization: This ratio indicates a company’s capability to convert assets into output and is thus a widely known measure of efficiency level. It is calculated by dividing total sales over the past 12 months by the last four-quarter average of total assets. Like the above ratios, high asset utilization may indicate that a company is efficient.
Inventory Turnover: The ratio of 12-month cost of goods sold (COGS) to a four-quarter average inventory is considered one of the most popular efficiency ratios. It indicates a company’s ability to maintain a suitable inventory position. While a high value indicates that the company has a relatively low level of inventory compared to COGS, a low value indicates that the company is facing declining sales, which resulted in excess inventory.
Receivables Turnover: This is the ratio of 12-month sales to four-quarter average receivables. It shows a company’s potential to extend its credit and collect debt in terms of that credit. A high receivables turnover ratio or the “accounts receivable turnover ratio” or “debtor’s turnover ratio” is desirable as it shows that the company is capable of collecting its accounts receivables or that it has quality customers. The Winning Strategy
Operating Margin, Asset Utilization, Inventory Turnover and Receivables Turnover greater than industry average.
(Values of these ratios higher than industry averages may indicate that the efficiency level of the company is higher than its peers.)
The use of these few criteria narrowed down the universe of over 7,906 stocks to 20.
Here are the top four stocks that made it through the screen:
CROX Quick Quote CROX - Free Report
) is a world leader in innovative casual footwear for men, women and children. It has an average four-quarter earnings surprise of 191.8%.
Vera Bradley, Inc.
VRA Quick Quote VRA - Free Report
) is a designer, producer, marketer and retailer of accessories for women. It has an average four-quarter earnings surprise of 93.4%.
Coeur Mining, Inc
CDE Quick Quote CDE - Free Report
) operates as a primary silver and gold producer with precious metals mines in the Americas. It has an average four-quarter earnings surprise of 86.1%.
Lakeland Industries, Inc.
LAKE Quick Quote LAKE - Free Report
) manufactures and sells industrial protective clothing and accessories for the industrial and public protective clothing market worldwide. It has an average four-quarter earnings surprise of 263.7%.
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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.