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Investors eye businesses that generate profits on a regular basis. In order to gauge the extent of profits, there is no better metric than net profit margin.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on 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 of a company’s operations and its cost-control measures.
Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric attracts investors and draws well-skilled employees, who eventually enhance business value.
Moreover, a higher net profit margin compared with its peers provides 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.
In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Furthermore, 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 environments. 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 we have picked five stocks — ModivCare (MODV - Free Report) , Meridian Corporation (MRBK - Free Report) , Genco Shipping & Trading Limited (GNK - Free Report) , Capital Product Partners L.P. (CPLP - Free Report) and Costamare Inc. (CMRE - Free Report) — from the 43 stocks that qualified the screen:
ModivCare is a technology-enabled healthcare services company. It provides a suite of integrated supportive care solutions for public and private players and their patients. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for ModivCare’s 2021 earnings has been revised upward to $7.53 from $7.07 in the past seven days. The MODV stock has surpassed the Zacks Consensus Estimate in three out of the trailing four quarters while missing the same on one occasion, the average positive surprise being 12.3%.
Meridian operates as a holding company of Meridian Bank and offers deposit accounts, credit products, real estate financing, residential mortgages, investment and wealth management and electronic payments processing services. The company flaunts a Zacks Rank of 1, at present, and has a VGM Score of A.
The Zacks Consensus Estimate for Meridian’s 2021 earnings has been revised upward to $5.72 from $5.27 in 30 days. The MRBK stock has surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 44.6%.
Genco Shipping & Trading is a ship-owning company. It transports iron ore, coal, grain, steel products and other drybulk cargoes along shipping routes. This Zacks Rank #1 Genco Shipping & Trading currently flaunts a VGM Score of A.
The Zacks Consensus Estimate of $4.12 for Genco Shipping & Trading’s current-year earnings has moved 20.1% north in the past 30 days. The GNK stock has surpassed the Zacks Consensus Estimate over the last four quarters, the average surprise being 42.6%.
Capital Product Partners L.P. is an international shipping company and leader in the seaborne transportation of refined oil products and chemicals. The company currently flaunts a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Capital Product Partners’ current-year earnings has moved up to $2.39 from $2.18 in the past 30 days. The CPLP stock has surpassed the Zacks Consensus Estimate twice in the trailing four quarters while has missed the same on two occasions,the average positive surprise being 11.4%.
Costamare operates as a containership owner chartering its vessels to liner companies. The company deploys its containership fleet principally under multi-year time charters with leading liner companies that operate regularly scheduled routes between large commercial ports.
At present, Costamare sports a Zacks Rank #1 and has a VGM Score of B. The Zacks Consensus Estimate of $2.45 for current-year earnings has moved 9.9% north over the past 30 days. The CMRE stock has surpassed the Zacks Consensus Estimate on one occasion while has matched the same thrice in the trailing four quarters, the average surprise being 0.8%.
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
5 Top-Rated Stocks With Solid Net Profit Margins
Investors eye businesses that generate profits on a regular basis. In order to gauge the extent of profits, there is no better metric than net profit margin.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on 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 of a company’s operations and its cost-control measures.
Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric attracts investors and draws well-skilled employees, who eventually enhance business value.
Moreover, a higher net profit margin compared with its peers provides 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.
In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Furthermore, 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 environments. 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 we have picked five stocks — ModivCare (MODV - Free Report) , Meridian Corporation (MRBK - Free Report) , Genco Shipping & Trading Limited (GNK - Free Report) , Capital Product Partners L.P. (CPLP - Free Report) and Costamare Inc. (CMRE - Free Report) — from the 43 stocks that qualified the screen:
ModivCare is a technology-enabled healthcare services company. It provides a suite of integrated supportive care solutions for public and private players and their patients. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for ModivCare’s 2021 earnings has been revised upward to $7.53 from $7.07 in the past seven days. The MODV stock has surpassed the Zacks Consensus Estimate in three out of the trailing four quarters while missing the same on one occasion, the average positive surprise being 12.3%.
Meridian operates as a holding company of Meridian Bank and offers deposit accounts, credit products, real estate financing, residential mortgages, investment and wealth management and electronic payments processing services. The company flaunts a Zacks Rank of 1, at present, and has a VGM Score of A.
The Zacks Consensus Estimate for Meridian’s 2021 earnings has been revised upward to $5.72 from $5.27 in 30 days. The MRBK stock has surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 44.6%.
Genco Shipping & Trading is a ship-owning company. It transports iron ore, coal, grain, steel products and other drybulk cargoes along shipping routes. This Zacks Rank #1 Genco Shipping & Trading currently flaunts a VGM Score of A.
The Zacks Consensus Estimate of $4.12 for Genco Shipping & Trading’s current-year earnings has moved 20.1% north in the past 30 days. The GNK stock has surpassed the Zacks Consensus Estimate over the last four quarters, the average surprise being 42.6%.
Capital Product Partners L.P. is an international shipping company and leader in the seaborne transportation of refined oil products and chemicals. The company currently flaunts a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Capital Product Partners’ current-year earnings has moved up to $2.39 from $2.18 in the past 30 days. The CPLP stock has surpassed the Zacks Consensus Estimate twice in the trailing four quarters while has missed the same on two occasions,the average positive surprise being 11.4%.
Costamare operates as a containership owner chartering its vessels to liner companies. The company deploys its containership fleet principally under multi-year time charters with leading liner companies that operate regularly scheduled routes between large commercial ports.
At present, Costamare sports a Zacks Rank #1 and has a VGM Score of B. The Zacks Consensus Estimate of $2.45 for current-year earnings has moved 9.9% north over the past 30 days. The CMRE stock has surpassed the Zacks Consensus Estimate on one occasion while has matched the same thrice in the trailing four quarters, the average surprise being 0.8%.
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/.