Investors always look for companies with a high level of profitability regardless of the present market condition. In this context, profitability analysis is used to identify a profitable company over a loss-making one. Profitability analysis is the best tool to measure the ability of the company to offer sturdy returns to investors even after meeting all its operating and non-operating costs.
Here, we have used the concept of accounting ratios to evaluate a company’s profitability. There are a variety of profitability ratios, from which we have chosen the most successful and frequently used profitability metric to determine the bottom-line performance of a company.
Net Income Ratio
Net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using net income ratio, one can determine a company’s effectiveness to meet operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.
Net income ratio is not the only indicator of future winners. So we have added a few more criteria to arrive at a winning strategy.
Zacks Rank Equal to #1: No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see . the complete list of today’s Zacks #1 Rank stocks here Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well. Trailing 12-Month Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability. Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.
These few parameters have narrowed down the universe of more than 6,804 stocks to only nine.
Here are five of the nine stocks that qualified the screen:
Ameris Bancorp ( ABCB Quick Quote ABCB - Free Report) is the bank holding company for Ameris Bank. Its 12-month net profit margin is 20.2%. PennyMac Financial Services, Inc. ( PFSI Quick Quote PFSI - Free Report) is engaged in mortgage banking and investment management activities in the United States. Its 12-month net profit margin is 37.8%. Flagstar Bancorp, Inc. ( FBC Quick Quote FBC - Free Report) is a savings and loan holding company for Flagstar Bank. Its 12-month net profit margin is 22.4%. Green Brick Partners, Inc. ( GRBK Quick Quote GRBK - Free Report) is the owner and operator of a homebuilding and land development company in the United States. Its 12-month net profit margin is 10.5%. OneMain Holdings, Inc. ( OMF Quick Quote OMF - Free Report) is a financial service holding company that engages in the consumer finance and insurance businesses. Its 12-month net profit margin is 13.6%.
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Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance .