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Grab These 4 Solid Net Profit Margin Stocks for Strong Returns
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Investors eye businesses that generate 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 underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends insight into how well a company is run and the headwinds weighing on it. JAKKS Pacific, Inc. (JAKK - Free Report) , Modine Manufacturing Company (MOD - Free Report) , Barrett Business Services, Inc. (BBSI - Free Report) and RCM Technologies, Inc. (RCMT - 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 attracts investors and draws well-skilled employees, who eventually enhance business 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 37 stocks that qualified the screen.
JAKKS Pacific is a multi-brand company that has been designing and marketing a broad range of toys and consumer products since 1995. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for JAKKS’s 2023 earnings has been revised upward by 37.9% to $5.17 per share in the past 30 days. JAKK surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 61.8%.
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 flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate of $3.04 per share for Modine Manufacturing’s fiscal 2024 earnings has moved 16 cents north in the past 30 days. MOD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 47%.
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 sports 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 30 days. BBSI surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 74%.
RCM Technologies is a national provider of business, technology and resource solutions in information technology and professional engineering to customers in corporate and government sectors. The stock flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for RCM Technologies’ 2023 earnings has been revised upward by 20 cents to $2.00 per share in the past 30 days. RCMT surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 13.3%.
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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Grab These 4 Solid Net Profit Margin Stocks for Strong Returns
Investors eye businesses that generate 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 underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends insight into how well a company is run and the headwinds weighing on it. JAKKS Pacific, Inc. (JAKK - Free Report) , Modine Manufacturing Company (MOD - Free Report) , Barrett Business Services, Inc. (BBSI - Free Report) and RCM Technologies, Inc. (RCMT - 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 attracts investors and draws well-skilled employees, who eventually enhance business 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 37 stocks that qualified the screen.
JAKKS Pacific is a multi-brand company that has been designing and marketing a broad range of toys and consumer products since 1995. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for JAKKS’s 2023 earnings has been revised upward by 37.9% to $5.17 per share in the past 30 days. JAKK surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 61.8%.
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 flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate of $3.04 per share for Modine Manufacturing’s fiscal 2024 earnings has moved 16 cents north in the past 30 days. MOD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 47%.
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 sports 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 30 days. BBSI surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 74%.
RCM Technologies is a national provider of business, technology and resource solutions in information technology and professional engineering to customers in corporate and government sectors. The stock flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for RCM Technologies’ 2023 earnings has been revised upward by 20 cents to $2.00 per share in the past 30 days. RCMT surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 13.3%.
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/.