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4 Profitable Stocks to Boost Returns Using Net Income Ratio

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Investors always seek companies with a high level of profitability regardless of the present market conditions. 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 is 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.

To that end, Fulgent Genetics, Inc. (FLGT - Free Report) , Largo Inc. (LGO - Free Report) , Citi Trends, Inc. (CTRN - Free Report) , and Textainer Group Holdings Limited (TGH - Free Report) , have been selected as the top picks with a high net income ratio.

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.

Screening Parameters

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: 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 7,685 stocks to only 12.

Here are four of the 12 stocks that qualified the screening:

Fulgent Genetics, Inc. is a provider of COVID-19 testing and genetic testing services to physicians with clinically actionable diagnostic information.

Fulgent’s technology platform integrates data comparison and suppression algorithms, adaptive learning software, advanced genetic diagnostics tools and integrated laboratory process which serves primarily to hospitals and medical institutions. Its 12-month net profit margin is 55%.

Largo Inc. is the developer and seller of vanadium-based utility scale electrical energy storage systems in Canada.

Largo’s products include VPURE+ vanadium flakes that are used in the production of master alloys, as well as ferrovanadium and vanadium carbon nitride for the steel industry. The 12-month net profit margin of LGO is 15.1%.

Textainer Group Holdings is a lessor of intermodal containers with a total fleet of more than 1.3 million containers, representing over 2,000,000 TEU. TGH leases containers to more than 400 shipping lines and other lessees, including each of the world's top 20 container lines.

Textainer Group is also the primary supplier of leased containers to the U.S. Military. Its 12-month net profit margin is 35.1%.

Citi Trends, Inc. is a value-priced retailer of urban fashion apparel and accessories for the entire family.

Citi Trends currently operates stores located in the South, Southeast and Mid-Atlantic region. The 12-month net profit margin of CTRN is 7.03%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.

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.

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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.

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