Investors prefer to invest in businesses that reap profits on a regular basis. To gauge the extent of profits, there is no better metric than the net profit margin.

A higher net margin reflects a company’s efficiency in converting sales into actual profits. Vince Holding Corp. (VNCE Quick QuoteVNCE - Free Report) , H World Group Limited (HTHT Quick QuoteHTHT - Free Report) , Enova International, Inc. (ENVA Quick QuoteENVA - Free Report) and Atlanticus Holdings Corporation (ATLC Quick QuoteATLC - 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, a 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 a business's 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: A 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 that qualified the screening:

Vince Holding is a New York-based global luxury apparel and accessories company. It specializes in modern, understated, everyday essentials for men and women, including cashmeres, silk blouses and leather products. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.

The Zacks Consensus Estimate for Vince Holding’s fiscal 2027 earnings has been revised upward by 100% to 26 cents per share in the past seven days. VNCE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 647.21%.

H World Group is a China-based global hotel operator. It manages diverse brands ranging from economy (HanTing) to luxury (Steigenberger) and operates mainly in China, with international presence through H World International (formerly Deutsche Hospitality). It currently operates more than 12,800 hotels across 21 countries. The stock sports a Zacks Rank of 1 at present and has a VGM Score of B.

The Zacks Consensus Estimate for H World Group’s 2026 earnings has been revised upward by 19 cents to $2.71 per share in the past 60 days. HTHT beat the Zacks Consensus Estimate for earnings thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 8.12%.

Enova International is a prominent financial technology company that provides online financial services to non-prime consumers and small businesses. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.

The Zacks Consensus Estimate for Enova International’s 2026 earnings has remained unchanged at $15.78 per share in the past 60 days. ENVA surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 8.66%.

Atlanticus provides credit and related financial services and products. The company operates in Credit Cards, Investments in previously charged-off receivables, auto finance and internet micro-loans. It markets fee-based products and services, including life insurance, card registration, telecommunication products and services, memberships in preferred buying clubs, travel services and debt waiver programs. The stock carries a Zacks Rank of 2 at present and has a VGM Score of B.

The Zacks Consensus Estimate for Atlanticus’ 2026 earnings has been revised upward by 7.9% to $8.48 per share in the past 60 days. ATLC beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 11.17%.