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Snap Up These 4 Stocks With Solid Net Profit Margin for Gains
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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. Modine Manufacturing Company (MOD - Free Report) , The Andersons, Inc. (ANDE - Free Report) , Barrette Business Services, Inc. (BBSI - Free Report) and Tactile Systems Technology, Inc. (TCMD - 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 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 38 stocks that qualified the screen:
Modine Manufacturing operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate of $2.97 per share for Modine Manufacturing’s fiscal 2024 earnings has moved 9 cents north in the past seven days. MOD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 47%.
Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing that generate revenues. The company maintains grain and production facilities throughout the Midwest and six retail locations in northern and central Ohio. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Andersons’ 2023 earnings has been revised upward by 10 cents to $3.12 per share in the past 60 days. ANDE surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 64.4%.
Barrett Business provides light industrial, clerical and technical employees to a wide range of businesses through staff leasing, contract staffing, site management and temporary staffing arrangements. The stock flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Barrett Business’ 2023 earnings has been revised upward by 32 cents to $7.10 per share in the past seven days. BBSI surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 74%.
Tactile Systems is a medical technology company that develops medical devices for the treatment of chronic diseases at home. Currently, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Tactile Systems’ 2023 earnings has remained unchanged at 15 cents per share in the past 60 days. TCMD surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 141.9%.
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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Snap Up These 4 Stocks With Solid Net Profit Margin for Gains
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. Modine Manufacturing Company (MOD - Free Report) , The Andersons, Inc. (ANDE - Free Report) , Barrette Business Services, Inc. (BBSI - Free Report) and Tactile Systems Technology, Inc. (TCMD - 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 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 38 stocks that qualified the screen:
Modine Manufacturing operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. These include heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building heating, ventilating, air conditioning and refrigeration equipment. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate of $2.97 per share for Modine Manufacturing’s fiscal 2024 earnings has moved 9 cents north in the past seven days. MOD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 47%.
Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing that generate revenues. The company maintains grain and production facilities throughout the Midwest and six retail locations in northern and central Ohio. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Andersons’ 2023 earnings has been revised upward by 10 cents to $3.12 per share in the past 60 days. ANDE surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 64.4%.
Barrett Business provides light industrial, clerical and technical employees to a wide range of businesses through staff leasing, contract staffing, site management and temporary staffing arrangements. The stock flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Barrett Business’ 2023 earnings has been revised upward by 32 cents to $7.10 per share in the past seven days. BBSI surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 74%.
Tactile Systems is a medical technology company that develops medical devices for the treatment of chronic diseases at home. Currently, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Tactile Systems’ 2023 earnings has remained unchanged at 15 cents per share in the past 60 days. TCMD surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 141.9%.
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/.