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Net profit margin is the most important entry in an income statement as it demonstrates the affluence of a company. It determines the efficiency of a company in deploying its resources, making it the most suitable metric for the measurement of 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 a potent point of reference to gauge the strength in a company’s operations and cost-control measures.
Higher net profit is essential for rewarding stakeholders. Net margin helps investors judge the risks of investing in a company. Creditors also view it as a major factor in determining a company’s ability to pay off debts.
Moreover, a higher net profit margin as compared to peers lends a competitive edge. Strength in the metric not only attracts investors but also draws well-skilled employees that eventually add to the value of the business.
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 daunting 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 of the stock.
Zacks Rank less than or equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment.
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 are five of the 17 stocks that qualified the screen:
Johnson Outdoors Inc. (Nasdaq: JOUT– Free Report) is a leading global outdoor recreation company that designs, manufactures and markets a portfolio of winning, consumer-preferred brands across four categories: Watercraft, Marine Electronics, Diving and Outdoor Equipment. The stock sports a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for fiscal 2017 earnings remained steady at $3.50 over the last 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chicago-based SP Plus Corporation (Nasdaq: SP– Free Report) provides professional parking, ground transportation, facility maintenance, security, and event logistics services to property owners and managers in the real estate industry. The stock carries a Zacks Rank #2 and a VGM Score of A. Further, the Zacks Consensus Estimate for 2017 earnings remained unchanged at $1.67 over the last 30 days.
American Woodmark Corp. (Nasdaq: AMWD– Free Report) manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The stock carries a Zacks Rank #2 and a VGM Score of B. Further, the Zacks Consensus Estimate for 2017 earnings remained unchanged at $4.96 over the last 30 days.
K12 Inc. (NYSE: LRN– Free Report) is a technology-based education company. The stock flaunts a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for fiscal 2017 earnings has remained steady at 50 cents over the last 30 days.
DAQO New Energy Corp. (NYSE: DQ– Free Report) is a manufacturer and seller of polysilicon and wafers. The stock carries a Zacks Rank #2 and a VGM Score of A. Further, the Zacks Consensus Estimate for 2017 earnings remained unchanged at $6.59 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.
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks.com featured highlights include Johnson Outdoors, SP Plus, American Woodmark, K12 and DAQO New Energy
For Immediate Release
Chicago, IL – October 9, 2017 - Stocks in this week’s article include Johnson Outdoors Inc. (Nasdaq: (JOUT - Free Report) – Free Report), SP Plus Corporation (Nasdaq: (SP - Free Report) – Free Report), American Woodmark Corp. (Nasdaq: (AMWD - Free Report) – Free Report), K12 Inc. (NYSE: (LRN - Free Report) – Free Report) and DAQO New Energy Corp. (NYSE: (DQ - Free Report) – Free Report).
Screen of the Week of Zacks Investment Research:
5 Stocks with Striking Net Profit Margin
Net profit margin is the most important entry in an income statement as it demonstrates the affluence of a company. It determines the efficiency of a company in deploying its resources, making it the most suitable metric for the measurement of 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 a potent point of reference to gauge the strength in a company’s operations and cost-control measures.
Higher net profit is essential for rewarding stakeholders. Net margin helps investors judge the risks of investing in a company. Creditors also view it as a major factor in determining a company’s ability to pay off debts.
Moreover, a higher net profit margin as compared to peers lends a competitive edge. Strength in the metric not only attracts investors but also draws well-skilled employees that eventually add to the value of the business.
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 daunting 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 of the stock.
Zacks Rank less than or equal to 2: Stocks having a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment.
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 are five of the 17 stocks that qualified the screen:
Johnson Outdoors Inc. (Nasdaq: JOUT– Free Report) is a leading global outdoor recreation company that designs, manufactures and markets a portfolio of winning, consumer-preferred brands across four categories: Watercraft, Marine Electronics, Diving and Outdoor Equipment. The stock sports a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for fiscal 2017 earnings remained steady at $3.50 over the last 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chicago-based SP Plus Corporation (Nasdaq: SP– Free Report) provides professional parking, ground transportation, facility maintenance, security, and event logistics services to property owners and managers in the real estate industry. The stock carries a Zacks Rank #2 and a VGM Score of A. Further, the Zacks Consensus Estimate for 2017 earnings remained unchanged at $1.67 over the last 30 days.
American Woodmark Corp. (Nasdaq: AMWD– Free Report) manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The stock carries a Zacks Rank #2 and a VGM Score of B. Further, the Zacks Consensus Estimate for 2017 earnings remained unchanged at $4.96 over the last 30 days.
K12 Inc. (NYSE: LRN– Free Report) is a technology-based education company. The stock flaunts a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for fiscal 2017 earnings has remained steady at 50 cents over the last 30 days.
DAQO New Energy Corp. (NYSE: DQ– Free Report) is a manufacturer and seller of polysilicon and wafers. The stock carries a Zacks Rank #2 and a VGM Score of A. Further, the Zacks Consensus Estimate for 2017 earnings remained unchanged at $6.59 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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Visit: https://www.zacks.com/performance
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.