We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Everybody loves to invest in a business that reports profits on a regular basis. And to gauge the extent of profit, there is no better metric than net profit margin.
Net profit margin demonstrates the affluence of a company. It determines the efficiency of a company in deploying its resources, making it the best metric to measure a company’s profitability.
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 an accurate point of reference to gauge the potential in a company operations and cost-control measures.
Higher net profit is indispensable for rewarding stakeholders. Also, the strength in the metric not only attracts new investors but also draws well-skilled employees who 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. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.
Moreover, 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 the 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.
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 six stocks that qualified the screen:
Rockville, MD-based Argan Inc. (AGX - Free Report) provides inside premise wiring services to the federal government. The company also offers underground and aerial construction services and splicing to major telecommunications and utilities customers. The stock has a VGM score of ‘A’. Moreover, the Zacks Consensus Estimate for 2016 has increased by 45 cents (14.1%) to $3.65 over the last 60 days.
Munich, Germany-based Bayerische Motoren Werke AG (BAMXF - Free Report) is a multi-brand automobile manufacturer that focuses on the premium segments of the worldwide automobile and motorcycle markets. The stock has a VGM score of ‘B’. Meanwhile, the Zacks Consensus Estimate for 2016 has increased by 42 cents (4.1%) to $10.73 over the last 60 days.
New York-based Enzo Biochem Inc. (ENZ - Free Report) develops, manufactures and markets health care products based on molecular biology and genetic engineering techniques, and provides diagnostic services to the medical community. The stock has a VGM score of ‘A’. Meanwhile, the Zacks Consensus Estimate for 2016 has narrowed down by a penny to a loss of 17 cents over the last 60 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 ‘A’. Meanwhile, the Zacks Consensus Estimate for 2016 has surged 14 cents (9.7%) to $1.58 per share over the last 60 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 climbed a penny to 60 cents over the last 60 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: In addition 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 »
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Top 5 Stocks with Solid Net Profit Margin
Everybody loves to invest in a business that reports profits on a regular basis. And to gauge the extent of profit, there is no better metric than net profit margin.
Net profit margin demonstrates the affluence of a company. It determines the efficiency of a company in deploying its resources, making it the best metric to measure a company’s profitability.
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 an accurate point of reference to gauge the potential in a company operations and cost-control measures.
Higher net profit is indispensable for rewarding stakeholders. Also, the strength in the metric not only attracts new investors but also draws well-skilled employees who 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. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.
Moreover, 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 the 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: In good markets or bad, stocks with a Zacks Rank of #1 (Strong Buy) continue to outperform and so only these are allowed. 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 (Buy) offer the best upside potential.
Here are five of the six stocks that qualified the screen:
Rockville, MD-based Argan Inc. (AGX - Free Report) provides inside premise wiring services to the federal government. The company also offers underground and aerial construction services and splicing to major telecommunications and utilities customers. The stock has a VGM score of ‘A’. Moreover, the Zacks Consensus Estimate for 2016 has increased by 45 cents (14.1%) to $3.65 over the last 60 days.
Munich, Germany-based Bayerische Motoren Werke AG (BAMXF - Free Report) is a multi-brand automobile manufacturer that focuses on the premium segments of the worldwide automobile and motorcycle markets. The stock has a VGM score of ‘B’. Meanwhile, the Zacks Consensus Estimate for 2016 has increased by 42 cents (4.1%) to $10.73 over the last 60 days.
New York-based Enzo Biochem Inc. (ENZ - Free Report) develops, manufactures and markets health care products based on molecular biology and genetic engineering techniques, and provides diagnostic services to the medical community. The stock has a VGM score of ‘A’. Meanwhile, the Zacks Consensus Estimate for 2016 has narrowed down by a penny to a loss of 17 cents over the last 60 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 ‘A’. Meanwhile, the Zacks Consensus Estimate for 2016 has surged 14 cents (9.7%) to $1.58 per share over the last 60 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 climbed a penny to 60 cents over the last 60 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: In addition 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 »