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Buy These 5 Top-Ranked Stocks With Superior Financial Efficiency
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Key Takeaways
Five stocks passed a screen based on four efficiency ratios exceeding their industry averages.
The screen narrowed more than 7,906 stocks to 16 using efficiency metrics and a favorable Zacks Rank.
HCSG, KMX, HAS, FORM and MXL posted average four-quarter earnings surprises ranging from 11.1% to 70.8%
A company’s efficiency level indicates how effectively it utilizes its resources, including labor, capital and assets, to generate revenues, maximize profitability and support business growth. It serves as an important measure of financial health and operational performance, highlighting how well a company manages its resources, controls costs and maintains its ability to generate consistent and sustainable profits over the long term. Companies with higher efficiency levels usually manage their operations better and generate stronger returns, making them more likely to deliver solid long-term stock performance.
However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider the popular efficiency ratios listed below 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 receivables 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 level of inventory 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 narrowed down the universe of over 7,906 stocks to 16.
Here are the top five stocks that made it through the screen:
Healthcare Services Group
Healthcare Services Group provides housekeeping, laundry, linen, facility maintenance and food services to the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals. HCSG has an average four-quarter earnings surprise of 70.8%.
CarMax
CarMax is the largest retailer of used vehicles in the United States. KMX has an average four-quarter earnings surprise of 56%.
Hasbro
Hasbro designs, manufactures and markets games, toys and licensed products. HAS has an average four-quarter earnings surprise of 37.3%.
FormFactor
FormFactor is a provider of electrical and optical test and measurement technologies across the semiconductor product lifecycle, from characterization and design debug to qualification and production test. FORM has an average four-quarter earnings surprise of 27.8%.
MaxLinear
MaxLinear is a fabless semiconductor company that designs and markets high-performance communications system-on-chip solutions for broadband, wired and wireless infrastructure, data centers, and industrial and multi-market applications. MXL has an average four-quarter earnings surprise of 11.1%.
View the Zacks #1 Rank List
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Buy These 5 Top-Ranked Stocks With Superior Financial Efficiency
Key Takeaways
A company’s efficiency level indicates how effectively it utilizes its resources, including labor, capital and assets, to generate revenues, maximize profitability and support business growth. It serves as an important measure of financial health and operational performance, highlighting how well a company manages its resources, controls costs and maintains its ability to generate consistent and sustainable profits over the long term. Companies with higher efficiency levels usually manage their operations better and generate stronger returns, making them more likely to deliver solid long-term stock performance.
However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider the popular efficiency ratios listed below while selecting stocks.
The stocks of Healthcare Services Group (HCSG - Free Report) , CarMax (KMX - Free Report) , Hasbro (HAS - Free Report) , FormFactor (FORM - Free Report) and MaxLinear (MXL - Free Report) made it through the screening process.
These 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 receivables 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 level of inventory 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 narrowed down the universe of over 7,906 stocks to 16.
Here are the top five stocks that made it through the screen:
Healthcare Services Group
Healthcare Services Group provides housekeeping, laundry, linen, facility maintenance and food services to the health care industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals. HCSG has an average four-quarter earnings surprise of 70.8%.
CarMax
CarMax is the largest retailer of used vehicles in the United States. KMX has an average four-quarter earnings surprise of 56%.
Hasbro
Hasbro designs, manufactures and markets games, toys and licensed products. HAS has an average four-quarter earnings surprise of 37.3%.
FormFactor
FormFactor is a provider of electrical and optical test and measurement technologies across the semiconductor product lifecycle, from characterization and design debug to qualification and production test. FORM has an average four-quarter earnings surprise of 27.8%.
MaxLinear
MaxLinear is a fabless semiconductor company that designs and markets high-performance communications system-on-chip solutions for broadband, wired and wireless infrastructure, data centers, and industrial and multi-market applications. MXL has an average four-quarter earnings surprise of 11.1%.