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Net profit is one of the most significant metrics used in corporate finance to determine the affluence of a company. A proper analysis of this metric lends an insight into how well a company is run and if there are any underlying headwinds.
Net Profit Margin = Net profit /Sales * 100.
In simple terms, net profit is the amount a company retains after meeting all the expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength in a company operations and cost-control measures.
Higher net profit is indispensable for rewarding stakeholders. Also, strength in the metric not only attracts new investors but also draws well-skilled employees that eventually add to the value of the business.
Moreover, a higher net profit margin as compared to peers lends 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 own share of pitfalls. The metric varies widely from industry to industry. The difference in accounting treatment of various items – especially non-cash expenses like depreciation and stock-based compensation – makes comparison a complex task.
Further, for companies preferring to grow with debt, instead of equity funding, higher interest expenses usually weigh on the net profit. In such cases, the measure is rendered ineffective to analyze a company’s performance.
The Winning Strategy
A healthy net profit margin and solid EPS growth are two most sought after elements in a business model.
Apart from these, we have added a few other 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 prospects of the stock.
Zacks Rank equal to 1: Only Strong Buy stocks are allowed. In good markets or bad, stocks with a Zacks Rank of #1 (Strong Buy) continue to outperform.
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 (Buy) offer the best upside potential.
Here are five of the eight stocks that qualified the screen:
Irvine, CA-based Autobytel Inc provides automotive marketing services that connect automotive retail dealers, manufacturers and consumers. The stock has a VGM score of ‘B’. Moreover, the Zacks Consensus Estimate for 2016 has surged 11.2% (11 cents) to 1.09 over the last 30 days.
County Bancorp Inc. , based in Manitowoc, WI, is a bank holding company, which provides a range of consumer and commercial banking services to individuals, businesses, and industries. The stock has a VGM score of ‘B’. Meanwhile, the Zacks Consensus Estimate for 2016 surged 9.4% (15 cents) to $1.85 per share over the last 7 days.
Gibraltar Industries Inc. (ROCK - Free Report) manufactures and distributes products to the industrial and buildings market. The company has its headquarters at Buffalo, NY. The stock has a VGM score of ‘B’. Meanwhile, the Zacks Consensus Estimate for 2016 has increased by 6 cents to $1.44 per share over the last 30 days.
Denver, CO-based Hallador Energy Company is engaged in the production and sale of steam coal used for power generation. The company has a VGM Score of ‘A’. Its earnings estimate for the current year has improved by 195% (39 cents) to 59 cents over the last 30 days.
CO-based Innospec Inc. (IOSP - Free Report) develops, manufactures, blends, markets and supplies fuel additives, oilfield chemicals, personal care and other specialty chemicals. The stock has a VGM score of ‘B’. Moreover, the Zacks Consensus Estimate for 2016 has increased by 15 cents (4.1%) at $3.80 over the last 30 days.
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.
Zacks Restaurant Recommendations: Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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5 Stocks to Buy with Impressive Net Profit Margin
Net profit is one of the most significant metrics used in corporate finance to determine the affluence of a company. A proper analysis of this metric lends an insight into how well a company is run and if there are any underlying headwinds.
Net Profit Margin = Net profit /Sales * 100.
In simple terms, net profit is the amount a company retains after meeting all the expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength in a company operations and cost-control measures.
Higher net profit is indispensable for rewarding stakeholders. Also, strength in the metric not only attracts new investors but also draws well-skilled employees that eventually add to the value of the business.
Moreover, a higher net profit margin as compared to peers lends 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 own share of pitfalls. The metric varies widely from industry to industry. The difference in accounting treatment of various items – especially non-cash expenses like depreciation and stock-based compensation – makes comparison a complex task.
Further, for companies preferring to grow with debt, instead of equity funding, higher interest expenses usually weigh on the net profit. In such cases, the measure is rendered ineffective to analyze a company’s performance.
The Winning Strategy
A healthy net profit margin and solid EPS growth are two most sought after elements in a business model.
Apart from these, we have added a few other 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 prospects of the stock.
Zacks Rank equal to 1: Only Strong Buy stocks are allowed. In good markets or bad, stocks with a Zacks Rank of #1 (Strong Buy) continue to outperform.
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 (Buy) offer the best upside potential.
Here are five of the eight stocks that qualified the screen:
Irvine, CA-based Autobytel Inc provides automotive marketing services that connect automotive retail dealers, manufacturers and consumers. The stock has a VGM score of ‘B’. Moreover, the Zacks Consensus Estimate for 2016 has surged 11.2% (11 cents) to 1.09 over the last 30 days.
County Bancorp Inc. , based in Manitowoc, WI, is a bank holding company, which provides a range of consumer and commercial banking services to individuals, businesses, and industries. The stock has a VGM score of ‘B’. Meanwhile, the Zacks Consensus Estimate for 2016 surged 9.4% (15 cents) to $1.85 per share over the last 7 days.
Gibraltar Industries Inc. (ROCK - Free Report) manufactures and distributes products to the industrial and buildings market. The company has its headquarters at Buffalo, NY. The stock has a VGM score of ‘B’. Meanwhile, the Zacks Consensus Estimate for 2016 has increased by 6 cents to $1.44 per share over the last 30 days.
Denver, CO-based Hallador Energy Company is engaged in the production and sale of steam coal used for power generation. The company has a VGM Score of ‘A’. Its earnings estimate for the current year has improved by 195% (39 cents) to 59 cents over the last 30 days.
CO-based Innospec Inc. (IOSP - Free Report) develops, manufactures, blends, markets and supplies fuel additives, oilfield chemicals, personal care and other specialty chemicals. The stock has a VGM score of ‘B’. Moreover, the Zacks Consensus Estimate for 2016 has increased by 15 cents (4.1%) at $3.80 over the last 30 days.
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.
Zacks Restaurant Recommendations: Inaddition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »