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Bet on These 4 Top-Ranked Stocks With Solid Net Profit Margin
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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. Virco Manufacturing Corporation (VIRC - Free Report) , EMCOR Group, Inc. (EME - Free Report) , Photronics, Inc. (PLAB - Free Report) and Limbach Holdings, Inc. (LMB - 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 the value of a business.
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 — Virco Manufacturing, EMCOR Group, Photronics, and Limbach — from the 35 stocks that qualified the screening.
Virco Manufacturing designs, produces and distributes quality furniture for the contract and education markets worldwide. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Virco Manufacturing’s fiscal 2024 earnings has moved 20.5% north in the past 30 days and currently stands at $1.35 per share. Virco Manufacturing surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 188.6%.
EMCOR Group is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses. The company serves commercial, industrial, utility and institutional clients. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for EMCOR Group’s current-year earnings has moved up by 12.9% to $12.38 per share in the past 60 days. EME surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 25%.
Photronics is a leading worldwide manufacturer of photomasks. Photomasks are high-precision quartz plates that contain microscopic images of electronic circuits. A key element in the manufacture of semiconductors and flat panel displays, photomasks are used to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, a variety of flat panel displays and, to a lesser extent, other types of electrical and optical components. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Photronics’ fiscal 2024 earnings has moved up by 15.6% to $2.60 per share in the past seven days. PLAB surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 8.5%.
Limbach provides building systems. The company engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. At present, the stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Limbach’s current-year earnings has moved up to $1.75 per share from $1.36 60 days ago. LMB surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 92.1%.
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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Bet on These 4 Top-Ranked Stocks With Solid Net Profit Margin
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. Virco Manufacturing Corporation (VIRC - Free Report) , EMCOR Group, Inc. (EME - Free Report) , Photronics, Inc. (PLAB - Free Report) and Limbach Holdings, Inc. (LMB - 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 the value of a business.
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 — Virco Manufacturing, EMCOR Group, Photronics, and Limbach — from the 35 stocks that qualified the screening.
Virco Manufacturing designs, produces and distributes quality furniture for the contract and education markets worldwide. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Virco Manufacturing’s fiscal 2024 earnings has moved 20.5% north in the past 30 days and currently stands at $1.35 per share. Virco Manufacturing surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 188.6%.
EMCOR Group is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, as well as building services for a diverse range of businesses. The company serves commercial, industrial, utility and institutional clients. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for EMCOR Group’s current-year earnings has moved up by 12.9% to $12.38 per share in the past 60 days. EME surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 25%.
Photronics is a leading worldwide manufacturer of photomasks. Photomasks are high-precision quartz plates that contain microscopic images of electronic circuits. A key element in the manufacture of semiconductors and flat panel displays, photomasks are used to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, a variety of flat panel displays and, to a lesser extent, other types of electrical and optical components. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Photronics’ fiscal 2024 earnings has moved up by 15.6% to $2.60 per share in the past seven days. PLAB surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 8.5%.
Limbach provides building systems. The company engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. At present, the stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Limbach’s current-year earnings has moved up to $1.75 per share from $1.36 60 days ago. LMB surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 92.1%.
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/.