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4 Stocks Powered by Solid Net Profit Margin for Your Portfolio
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The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. EnerSys (ENS - Free Report) , M/I Homes (MHO - Free Report) , EZCORP (EZPW - Free Report) and Copa Holdings (CPA - Free Report) 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, 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 a business’ value.
Moreover, a higher net profit margin compared with its peers provides a company with 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 have picked four stocks — EnerSys, M/I Homes, EZCORP and Copa Holdings — from the 32 stocks that qualified the screen:
EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, the company develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, it provides support services for clients. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate of $6.84 per share for EnerSys’ fiscal 2024 earnings has moved 11.6% north in the past 30 days. ENS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 9%.
M/I Homes is one of the nation's leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes. Its clients include first-time, move-up, empty-nester and luxury buyers. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up to $12.40 per share from $11.12 60 days ago. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.
EZCORP is engaged in establishing, acquiring, and operating pawnshops, which function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for EZCORP’s fiscal 2023 earnings has been revised upward to 85 cents per share from 75 cents in the past 60 days. EZPW surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 71.7%.
Copa Holdings is based in Panama City, Panama. The company, through its main subsidiaries — Copa Airlines and Copa Colombia — offers airline passenger and cargo services. Copa Airlines was founded in 1947 and currently flies to 69 destinations covering 29 countries in North, Central, South America and the Caribbean from its Panama City hub. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Copa Holdings’ current-year earnings has moved up by 18.2% to $14.49 per share in the past 30 days. CPA surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 14.6%.
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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4 Stocks Powered by Solid Net Profit Margin for Your Portfolio
The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. EnerSys (ENS - Free Report) , M/I Homes (MHO - Free Report) , EZCORP (EZPW - Free Report) and Copa Holdings (CPA - Free Report) 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, 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 a business’ value.
Moreover, a higher net profit margin compared with its peers provides a company with 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 have picked four stocks — EnerSys, M/I Homes, EZCORP and Copa Holdings — from the 32 stocks that qualified the screen:
EnerSys engages in manufacturing, marketing and distribution of various industrial batteries. Additionally, the company develops battery chargers and accessories, power equipment and outdoor cabinet enclosures. This apart, it provides support services for clients. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate of $6.84 per share for EnerSys’ fiscal 2024 earnings has moved 11.6% north in the past 30 days. ENS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 9%.
M/I Homes is one of the nation's leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes. Its clients include first-time, move-up, empty-nester and luxury buyers. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up to $12.40 per share from $11.12 60 days ago. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.
EZCORP is engaged in establishing, acquiring, and operating pawnshops, which function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for EZCORP’s fiscal 2023 earnings has been revised upward to 85 cents per share from 75 cents in the past 60 days. EZPW surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 71.7%.
Copa Holdings is based in Panama City, Panama. The company, through its main subsidiaries — Copa Airlines and Copa Colombia — offers airline passenger and cargo services. Copa Airlines was founded in 1947 and currently flies to 69 destinations covering 29 countries in North, Central, South America and the Caribbean from its Panama City hub. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Copa Holdings’ current-year earnings has moved up by 18.2% to $14.49 per share in the past 30 days. CPA surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 14.6%.
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/.