Investors prefer to put their money in businesses that reap 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 reflects the company’s efficiency in converting sales into actual profits.
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.
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.
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.
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 six of the 22 stocks that qualified the screen:
Meridian Bioscience, Inc. VIVO is a fully integrated life-science company that manufactures, markets and distributes a broad range of innovative diagnostic test kits, purified reagents and biopharmaceutical enabling technologies that help deliver answers. This Zacks Rank #1 stock currently has a VGM Score of B. The Zacks Consensus Estimate of $2.66 for the current-year earnings has moved up by 12 cents in 30 days’ time.
Piper Sandler Companies PIPR is a focused securities firm dedicated to delivering superior financial advice, investment products and transaction execution within selected sectors of the financial services marketplace. The stock currently sports a Zacks Rank of 1 and has a VGM Score of B. The Zacks Consensus Estimate for 2020 earnings has been revised upward to $7.20 from $5.70 in the past 60 days.
Herc Holdings, Inc. HRI is an equipment rental supplier across North America and in international markets. This Zacks Rank #1 stock has a VGM Score of B, at present. The Zacks Consensus Estimate of $2.66 for the ongoing-year earnings has moved 5 cents north over the past 30 days.
Aviat Networks, Inc. AVNW, previously known as Harris Stratex Networks, Inc., is a global supplier of wireless network solutions and network management software, backed by a suite of professional services and support. The stock presently flaunts a Zacks Rank of 1 and has a VGM Score of B. The Zacks Consensus Estimate of $2.95 for fiscal 2021 earnings moved 18% north in 60 days’ time.
Systemax Inc. SYX is a direct marketer of brand name and private label industrial, business equipment and supplies across the United States. The stock currently carries a Zacks Rank of 2 and has a VGM Score of A. The Zacks Consensus Estimate of $1.70 for 2020 earnings moved 36 cents north in the past 60 days.
Carriage Services, Inc. CSV is a leading provider of death care services and products in the United States. It offers a complete range of services relating to funerals, burials and cremations, including the use of funeral homes and motor vehicles, the performance of cemetery interment services and the management and maintenance of cemetery grounds. At present, the stock carries a Zacks Rank of #2 and has a VGM Score of A. The Zacks Consensus Estimate for the ongoing-year earnings has been revised 17.4% upward to $1.82 over 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/.
免责声明：投资有风险，本文并非投资建议，以上内容不应被视为任何金融产品的购买或出售要约、建议或邀请，作者或其他用户的任何相关讨论、评论或帖子也不应被视为此类内容。本文仅供一般参考，不考虑您的个人投资目标、财务状况或需求。TTM对信息的准确性和完整性不承担任何责任或保证，投资者应自行研究并在投资前寻求专业建议。