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Bet on These Top 5 Stocks With Stellar Net Profit Margins
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Investors eye businesses that generate profits on a regular basis. In order to gauge the extent of profits, there is no better metric than the net profit margin.
A higher net margin underlines a company’s efficiency to translate sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on it.
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 of a company’s operations and its cost-control measures.
Also, 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’ value.
Moreover, a higher net profit margin compared with its peers provides the company 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 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.
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: 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 environment. 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 are five of the 19 stocks that qualified the screen:
Euronav (EURN - Free Report) is a tanker company. It owns, operates and manages a fleet of vessels for the transportation and storage of crude oil and petroleum products. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate of $2.36 for 2020 earnings has been revised upward by 79 cents in the past 60 days.
Enova International, Inc. (ENVA - Free Report) is a provider of online financial services. It offers loans to customers in the United States, and in the U.K., Australia and Canada. At present, this Zacks #1 Ranked player has a VGM Score of A. The Zacks Consensus Estimate of $4.64 for current-year earnings moved up 22 cents over the past 60 days.
Mueller Industries, Inc. (MLI - Free Report) is a leading manufacturer of copper tube and fittings; brass and copper alloy rod, bar and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; plastic fittings and valves; refrigeration valves and fittings; and fabricated tubular products. The stock currently flaunts a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate of $1.92 for ongoing-year earnings moved four cents north in 60 days’ time.
Hanger, Inc. delivers orthotic and prosthetic patient care, and distributes O&P products and rehabilitative solutions. At present, this Zacks #1 Ranked player has a VGM Score of A. The Zacks Consensus Estimate of $1.02 for this year’s earnings moved upward by a penny over the past 60 days.
1-800-FLOWERS.COM, Inc. (FLWS - Free Report) is a leading e-commerce provider of floral products and gifts, in terms of number of customers and revenue.The stock currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate of 60 cents for 2020 earnings has been revised upward by a penny in the past 60 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.
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/.
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Bet on These Top 5 Stocks With Stellar Net Profit Margins
Investors eye businesses that generate profits on a regular basis. In order to gauge the extent of profits, there is no better metric than the net profit margin.
A higher net margin underlines a company’s efficiency to translate sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on it.
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 of a company’s operations and its cost-control measures.
Also, 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’ value.
Moreover, a higher net profit margin compared with its peers provides the company 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 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.
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: 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 environment. 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 are five of the 19 stocks that qualified the screen:
Euronav (EURN - Free Report) is a tanker company. It owns, operates and manages a fleet of vessels for the transportation and storage of crude oil and petroleum products. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate of $2.36 for 2020 earnings has been revised upward by 79 cents in the past 60 days.
Enova International, Inc. (ENVA - Free Report) is a provider of online financial services. It offers loans to customers in the United States, and in the U.K., Australia and Canada. At present, this Zacks #1 Ranked player has a VGM Score of A. The Zacks Consensus Estimate of $4.64 for current-year earnings moved up 22 cents over the past 60 days.
Mueller Industries, Inc. (MLI - Free Report) is a leading manufacturer of copper tube and fittings; brass and copper alloy rod, bar and shapes; aluminum and brass forgings; aluminum and copper impact extrusions; plastic fittings and valves; refrigeration valves and fittings; and fabricated tubular products. The stock currently flaunts a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate of $1.92 for ongoing-year earnings moved four cents north in 60 days’ time.
Hanger, Inc. delivers orthotic and prosthetic patient care, and distributes O&P products and rehabilitative solutions. At present, this Zacks #1 Ranked player has a VGM Score of A. The Zacks Consensus Estimate of $1.02 for this year’s earnings moved upward by a penny over the past 60 days.
1-800-FLOWERS.COM, Inc. (FLWS - Free Report) is a leading e-commerce provider of floral products and gifts, in terms of number of customers and revenue.The stock currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate of 60 cents for 2020 earnings has been revised upward by a penny in the past 60 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.
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/.