Investors always look for companies with a high level of profitability regardless of the market condition. In this context, profitability analysis is used to identify a profitable company over a loss-making one. Profitability analysis is the best tool to measure the ability of the company to offer sturdy returns to investors even after meeting all its operating and non-operating costs.
Here, we have used the concept of accounting ratios to evaluate a company’s profitability. There is a variety of profitability ratios, from which we have chosen the most successful and frequently used profitability metric to determine the bottom-line performance of a company.
Net Income Ratio
Net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using net income ratio, one can determine a company’s effectiveness to meet operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.
Net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.
Zacks Rank Equal to #1: No matter whether good market or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.
Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.
Trailing 12-Month Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.
Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.
These few parameters narrowed down the universe of over 6,834 stocks to only 7.
Here are five of the 9 stocks that qualified the screen:
Universal Forest Products, Inc. (UFPI - Free Report) is the designer and marketer of wood and wood-alternative products. Its 12-month net profit margin is 3.9%.
ACM Research, Inc. (ACMR - Free Report) is a developer and manufacturer of single-wafer wet cleaning equipment. Its 12-month net profit margin is 16.6%.
Celsius Holdings, Inc. (CELH - Free Report) is a developer and distributor of calorie-burning fitness beverages. Its 12-month net profit margin is 15.7%.
Sony Corporation (SNE - Free Report) is a designer and developer of electronic equipment, instruments and devices. Its 12-month net profit margin is 9.9%.
LexinFintech Holdings Ltd. (LX - Free Report) is an online consumer finance platform for educated young adults. Its 12-month net profit margin is 27%.
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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.