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4 Top-Ranked Stocks With Solid Net Profit Margin to Bet On
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Investors prefer to put their money in businesses that reap 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 reflects a company’s efficiency in converting sales into actual profits. Copa Holdings (CPA - Free Report) , EnerSys (ENS - Free Report) , Franklin Convey (FC - Free Report) and M/I Homes (MHO - 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, 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 a business's value.
Moreover, a higher net profit margin compared with its peers provides the 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 discuss our four picks from the 25 stocks that qualified the screen:
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 2.6% to $15.61 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%.
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 B.
The Zacks Consensus Estimate of $6.84 per share for EnerSys’ fiscal 2024 earnings has moved 11.6% north in the past 60 days. ENS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 9%.
Franklin Covey is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. The company provides consulting services, training and education programs, educational materials, publications, assessment and measurement tools, implementation processes, application tools and products designed to empower individuals and organizations to become more effective. The stock flaunts a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Franklin Covey’s fiscal 2023 earnings has been revised upward to $1.23 per share from $1.06 in the past 30 days. FC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 34.8%.
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 carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up to $12.58 per share from $12.40 seven days ago. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.
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-Ranked Stocks With Solid Net Profit Margin to Bet On
Investors prefer to put their money in businesses that reap 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 reflects a company’s efficiency in converting sales into actual profits. Copa Holdings (CPA - Free Report) , EnerSys (ENS - Free Report) , Franklin Convey (FC - Free Report) and M/I Homes (MHO - 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, 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 a business's value.
Moreover, a higher net profit margin compared with its peers provides the 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 discuss our four picks from the 25 stocks that qualified the screen:
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 2.6% to $15.61 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%.
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 B.
The Zacks Consensus Estimate of $6.84 per share for EnerSys’ fiscal 2024 earnings has moved 11.6% north in the past 60 days. ENS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 9%.
Franklin Covey is an international learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. The company provides consulting services, training and education programs, educational materials, publications, assessment and measurement tools, implementation processes, application tools and products designed to empower individuals and organizations to become more effective. The stock flaunts a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Franklin Covey’s fiscal 2023 earnings has been revised upward to $1.23 per share from $1.06 in the past 30 days. FC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 34.8%.
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 carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for M/I Homes’ current-year earnings has moved up to $12.58 per share from $12.40 seven days ago. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.
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/.