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These 4 Solid Net Profit Margin Stocks Have Winning Potential
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Net profit, also referred to as the bottom line, is one of the key tools determining the financial health of an enterprise. The metric demonstrates a company’s ability to convert per dollar sales into profits.
A low-profit margin indicates higher risks, implying that a revenue drop might dampen profits, thus pushing a company into the red. Tecnoglass, Inc. (TGLS - Free Report) , Encore Wire Corporation (WIRE - Free Report) , Global Ship Lease, Inc. (GSL - Free Report) and Cavco Industries, Inc. (CVCO - Free Report) however boast solid net profit margins.
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, the 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 not only attracts investors but also 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 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 discuss our four picks from the 54 stocks that qualified the screen:
Tecnoglass is engaged in manufacturing and selling architectural glass and windows and aluminum products for the residential and commercial construction industries. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Tecnoglass’ 2022 earnings has been revised upward by 14.7% to $2.57 per share in the past 60 days. TGLS surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 24.4%.
Encore Wire is a low-cost manufacturer of copper electrical building wire and cable. The company is a significant supplier of both residential wire for interior electrical wiring in homes, apartments and manufactured housing, as well as building wire for electrical distribution in commercial and industrial buildings. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Encore Wire’s 2022 earnings has been revised upward to $26.86 per share from $19.18 in the past 60 days. WIRE surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 195%.
Global Ship Lease is a rapidly growing containership charter owner. Incorporated in the Marshall Islands, the company commenced operations in December 2007 with a business of owning and chartering out containerships under long-term, fixed-rate charters to world-class container liner companies. At present, the stock has a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate of $7.34 per share for Global Ship Lease’s current-year earnings has moved 27 cents north in the past 60 days. GSL surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, the average surprise being 38.4%.
Cavco Industries designs and produces factory-built housing products, primarily distributed through a network of independent and company-owned retailers. Franklin Covey sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for CVCO’s fiscal 2023 earnings has been revised upward to $24.05 per share from $18.61 in the past 60 days. Cavco Industries surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 50.4%.
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.
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These 4 Solid Net Profit Margin Stocks Have Winning Potential
Net profit, also referred to as the bottom line, is one of the key tools determining the financial health of an enterprise. The metric demonstrates a company’s ability to convert per dollar sales into profits.
A low-profit margin indicates higher risks, implying that a revenue drop might dampen profits, thus pushing a company into the red. Tecnoglass, Inc. (TGLS - Free Report) , Encore Wire Corporation (WIRE - Free Report) , Global Ship Lease, Inc. (GSL - Free Report) and Cavco Industries, Inc. (CVCO - Free Report) however boast solid net profit margins.
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, the 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 not only attracts investors but also 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 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 discuss our four picks from the 54 stocks that qualified the screen:
Tecnoglass is engaged in manufacturing and selling architectural glass and windows and aluminum products for the residential and commercial construction industries. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Tecnoglass’ 2022 earnings has been revised upward by 14.7% to $2.57 per share in the past 60 days. TGLS surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 24.4%.
Encore Wire is a low-cost manufacturer of copper electrical building wire and cable. The company is a significant supplier of both residential wire for interior electrical wiring in homes, apartments and manufactured housing, as well as building wire for electrical distribution in commercial and industrial buildings. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Encore Wire’s 2022 earnings has been revised upward to $26.86 per share from $19.18 in the past 60 days. WIRE surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 195%.
Global Ship Lease is a rapidly growing containership charter owner. Incorporated in the Marshall Islands, the company commenced operations in December 2007 with a business of owning and chartering out containerships under long-term, fixed-rate charters to world-class container liner companies. At present, the stock has a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate of $7.34 per share for Global Ship Lease’s current-year earnings has moved 27 cents north in the past 60 days. GSL surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, the average surprise being 38.4%.
Cavco Industries designs and produces factory-built housing products, primarily distributed through a network of independent and company-owned retailers. Franklin Covey sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for CVCO’s fiscal 2023 earnings has been revised upward to $24.05 per share from $18.61 in the past 60 days. Cavco Industries surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 50.4%.
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/.