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4 Top-Rated Stocks With Impressive Net Profit Margin to Buy
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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. InterDigital (IDCC - Free Report) , Inspired Entertainment (INSE - Free Report) , OneSpaWorld Holdings (OSW - Free Report) and OSI Systems (OSIS - 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, 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 peers provides a 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 37 stocks that qualified the screen:
InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company designs and develops a wide range of advanced technology solutions, which are used in digital cellular and wireless 3G, 4G and IEEE 802-related products and networks. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for InterDigital’s 2023 earnings has been revised upward by a penny to $8.08 per share in the past 30 days. IDCC surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 170.9%.
Inspired Entertainment is a games technology company. It supplies Virtual Sports, Mobile Gaming and Server-Based Gaming systems to regulated lottery, betting and gaming operators. The company currently sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for INSE’s 2023 earnings has been revised upward to $1.10 per share from 96 cents in the past 60 days. Inspired Entertainment surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 28%.
OneSpaWorld is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and on land. The company's service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management and medi-spa. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.
The Zacks Consensus Estimate for OneSpaWorld’s 2023 earnings has been revised upward by couple of cents to 53 cents per share in the past 30 days. OSW surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 65.8%.
OSI Systems is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries. Currently, the stock carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for OSI Systems’ fiscal 2024 earnings has been revised upward by 17 cents to $7.08 per share in the past 60 days. OSIS surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 3.5%.
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 Top-Rated Stocks With Impressive Net Profit Margin to Buy
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. InterDigital (IDCC - Free Report) , Inspired Entertainment (INSE - Free Report) , OneSpaWorld Holdings (OSW - Free Report) and OSI Systems (OSIS - 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, 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 peers provides a 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 37 stocks that qualified the screen:
InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company designs and develops a wide range of advanced technology solutions, which are used in digital cellular and wireless 3G, 4G and IEEE 802-related products and networks. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for InterDigital’s 2023 earnings has been revised upward by a penny to $8.08 per share in the past 30 days. IDCC surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 170.9%.
Inspired Entertainment is a games technology company. It supplies Virtual Sports, Mobile Gaming and Server-Based Gaming systems to regulated lottery, betting and gaming operators. The company currently sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for INSE’s 2023 earnings has been revised upward to $1.10 per share from 96 cents in the past 60 days. Inspired Entertainment surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 28%.
OneSpaWorld is a provider and innovator in the fields of wellness, beauty, rejuvenation and transformation on cruise ships and on land. The company's service includes traditional and alternative massage, body and skincare treatment options, ayurvedic treatments, comprehensive hair and nail services, fitness, acupuncture, herbal medicine, pain management and medi-spa. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.
The Zacks Consensus Estimate for OneSpaWorld’s 2023 earnings has been revised upward by couple of cents to 53 cents per share in the past 30 days. OSW surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 65.8%.
OSI Systems is a vertically integrated designer and manufacturer of specialized electronic systems and components for critical applications in the homeland security, healthcare, defense and aerospace industries. Currently, the stock carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for OSI Systems’ fiscal 2024 earnings has been revised upward by 17 cents to $7.08 per share in the past 60 days. OSIS surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 3.5%.
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/.