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5 Top-Ranked High-Efficiency Stocks With Strong Profit Potential
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Key Takeaways
CareDx, Ciena, Celestica, Materion and MACOM passed the high-efficiency stock screen.
The screen required efficiency ratios above industry averages and a Zacks Rank #1.
CareDx posted an 85.7% average four-quarter earnings surprise, highest among the five.
Efficiency measures how effectively a company utilizes its resources and inputs to generate productive outputs. It is an important indicator of a company’s ability to generate profits, as higher efficiency typically reflects better resource utilization, stronger operational performance and more effective management of costs and assets. Companies that operate efficiently can often maximize output from their available resources, improve productivity and strengthen overall profitability. Hence, companies with high efficiency levels are expected to deliver stronger returns, as efficiency is often positively correlated with stock price performance.
However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider popular efficiency ratios while selecting stocks.
Receivables Turnover: This is the ratio of 12-month sales to four-quarter average receivables. It shows a company’s potential to extend its credit and collect debt in terms of that credit. A high receivables turnover ratio, or the “accounts receivable turnover ratio” or “debtor’s turnover ratio” is desirable as it shows that the company is capable of collecting its accounts receivable or that it has quality customers.
Asset Utilization: This ratio indicates a company’s capability to convert assets into output and is thus a widely known measure of efficiency level. It is calculated by dividing total sales over the past 12 months by the last four-quarter average of total assets. Like the above ratios, high asset utilization may indicate that a company is efficient.
Inventory Turnover: The ratio of the 12-month cost of goods sold (COGS) to a four-quarter average inventory is considered one of the most popular efficiency ratios. It indicates a company’s ability to maintain a suitable inventory position. While a high value indicates that the company has a relatively low inventory level compared to COGS, a low value indicates that the company is facing declining sales, which has resulted in excess inventory.
Operating Margin: This efficiency measure is the ratio of operating income over the past 12 months to sales over the same period. It measures a company’s ability to control operating expenses. Hence, a high value of the ratio may indicate that the company manages its operating expenses more efficiently than its peers.
Screening Criteria
In addition to the above-mentioned ratios, we have added a favorable Zacks Rank — Zacks Rank #1 (Strong Buy) — to the screen to make this strategy more profitable. You can see the complete list of today’s Zacks #1 Rank stocks here.
Inventory Turnover, Receivables Turnover, Asset Utilization, and Operating Margin greater than the industry average
(Values of these ratios higher than industry averages may indicate that the efficiency level of the company is higher than its peers.)
The use of these few criteria has narrowed down the universe of over 7,906 stocks to 23.
Our Choices
Here are the top five stocks that made it through the screen:
CareDx
CareDx is a commercial-stage company that develops, markets and delivers a diagnostic surveillance solution for heart transplant recipients. CDNA has an average four-quarter earnings surprise of 85.7%.
CIEN
CIEN is a leading provider of optical networking equipment, software and services. CIEN has an average four-quarter earnings surprise of 17.6%.
Celestica
Celestica is one of the largest electronics manufacturing services companies in the world, primarily serving original equipment manufacturers, cloud-based and other service providers and enterprises from several industries. CLS has an average four-quarter earnings surprise of 7.7%.
Materion
Materion is engaged in the production and supply of high-performance engineered materials in the United States and internationally. MTRN has an average four-quarter earnings surprise of 6.6%.
MACOM Technology Solutions
MACOM Technology Solutions is a provider of power analog semiconductor solutions to varied markets. MTSI has an average four-quarter earnings surprise of 2.6%.
View the Zacks #1 Rank List
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5 Top-Ranked High-Efficiency Stocks With Strong Profit Potential
Key Takeaways
Efficiency measures how effectively a company utilizes its resources and inputs to generate productive outputs. It is an important indicator of a company’s ability to generate profits, as higher efficiency typically reflects better resource utilization, stronger operational performance and more effective management of costs and assets. Companies that operate efficiently can often maximize output from their available resources, improve productivity and strengthen overall profitability. Hence, companies with high efficiency levels are expected to deliver stronger returns, as efficiency is often positively correlated with stock price performance.
However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider popular efficiency ratios while selecting stocks.
CareDx (CDNA - Free Report) , Ciena (CIEN - Free Report) , Celestica (CLS - Free Report) , Materion (MTRN - Free Report) and MACOM Technology Solutions (MTSI - Free Report) made it through the screening process.
The efficiency ratios are:
Receivables Turnover: This is the ratio of 12-month sales to four-quarter average receivables. It shows a company’s potential to extend its credit and collect debt in terms of that credit. A high receivables turnover ratio, or the “accounts receivable turnover ratio” or “debtor’s turnover ratio” is desirable as it shows that the company is capable of collecting its accounts receivable or that it has quality customers.
Asset Utilization: This ratio indicates a company’s capability to convert assets into output and is thus a widely known measure of efficiency level. It is calculated by dividing total sales over the past 12 months by the last four-quarter average of total assets. Like the above ratios, high asset utilization may indicate that a company is efficient.
Inventory Turnover: The ratio of the 12-month cost of goods sold (COGS) to a four-quarter average inventory is considered one of the most popular efficiency ratios. It indicates a company’s ability to maintain a suitable inventory position. While a high value indicates that the company has a relatively low inventory level compared to COGS, a low value indicates that the company is facing declining sales, which has resulted in excess inventory.
Operating Margin: This efficiency measure is the ratio of operating income over the past 12 months to sales over the same period. It measures a company’s ability to control operating expenses. Hence, a high value of the ratio may indicate that the company manages its operating expenses more efficiently than its peers.
Screening Criteria
In addition to the above-mentioned ratios, we have added a favorable Zacks Rank — Zacks Rank #1 (Strong Buy) — to the screen to make this strategy more profitable. You can see the complete list of today’s Zacks #1 Rank stocks here.
Inventory Turnover, Receivables Turnover, Asset Utilization, and Operating Margin greater than the industry average
(Values of these ratios higher than industry averages may indicate that the efficiency level of the company is higher than its peers.)
The use of these few criteria has narrowed down the universe of over 7,906 stocks to 23.
Our Choices
Here are the top five stocks that made it through the screen:
CareDx
CareDx is a commercial-stage company that develops, markets and delivers a diagnostic surveillance solution for heart transplant recipients. CDNA has an average four-quarter earnings surprise of 85.7%.
CIEN
CIEN is a leading provider of optical networking equipment, software and services. CIEN has an average four-quarter earnings surprise of 17.6%.
Celestica
Celestica is one of the largest electronics manufacturing services companies in the world, primarily serving original equipment manufacturers, cloud-based and other service providers and enterprises from several industries. CLS has an average four-quarter earnings surprise of 7.7%.
Materion
Materion is engaged in the production and supply of high-performance engineered materials in the United States and internationally. MTRN has an average four-quarter earnings surprise of 6.6%.
MACOM Technology Solutions
MACOM Technology Solutions is a provider of power analog semiconductor solutions to varied markets. MTSI has an average four-quarter earnings surprise of 2.6%.