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Profitability analysis is considered one of the best possible ways to assess the prospects of a company. This analysis is used to identify a profitable company from a loss-making one. In this context, it can be inferred that a profitable company generally has a high level of sales surplus, which will help it in meeting all its operating and non-operating costs and still offer high returns.
In this context, it may be wise to invest in shares of a company with a high level of profitability as it normally ensures high returns. As a result, the simplest and most transparent way of checking a company’s profitability is by using accounting ratios. There are a variety of profitability ratios, from which we have selected net income ratio here as it is the most useful and simplest profitability metric.
Net Income Ratio
There are a variety of profit ratios like gross income ratio, operating income ratio, pretax profit margin and net income ratio, which can be used to find out a company’s profit generating abilities. But net income ratio is widely accepted as the most conservative of the above-mentioned ratios.
Net income in simple words is the total earnings that a company makes after deducting all the expenses from its sales revenue. Net income ratio or net profit margin is a ratio of a company’s net income and sales revenues. A high net income ratio shows that the company is able to effectively manage all its business activities, including production, administration, selling, etc.
Screening Parameters
Net income ratio is one of our key screening parameters. However, to find out the sure winners, we have added a few additional criteria to arrive at an efficient strategy.
Zacks Rank Equal to #1: No matter whether the market is good 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 have narrowed down the universe of more than 7,421 stocks to only 11.
Here are four of the 11 stocks that qualified the screen:
Teledyne Technologies Incorporated (TDY - Free Report) is a provider of instrumentation, digital imaging, aerospace and defense electronics as well as engineered systems. Its 12-month net profit margin is 13%.
Medifast, Inc. (MED - Free Report) is a manufacturer and distributor of clinically proven healthy living products and programs. Its 12-month net profit margin is 11.4%.
PetroChina Company Limited is engaged in a broad range of petroleum-related activities, including exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing, including import and export, of crude oil and petroleum products. Its 12-month net profit margin is 3.2%.
Tilly's, Inc. (TLYS - Free Report) is a specialty retailer of casual apparel, footwear, accessories as well as hardgoods. Its 12-month net profit margin is 4.4%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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.
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4 Stocks With High Net Income Ratio to Scoop Up
Profitability analysis is considered one of the best possible ways to assess the prospects of a company. This analysis is used to identify a profitable company from a loss-making one. In this context, it can be inferred that a profitable company generally has a high level of sales surplus, which will help it in meeting all its operating and non-operating costs and still offer high returns.
In this context, it may be wise to invest in shares of a company with a high level of profitability as it normally ensures high returns. As a result, the simplest and most transparent way of checking a company’s profitability is by using accounting ratios. There are a variety of profitability ratios, from which we have selected net income ratio here as it is the most useful and simplest profitability metric.
Net Income Ratio
There are a variety of profit ratios like gross income ratio, operating income ratio, pretax profit margin and net income ratio, which can be used to find out a company’s profit generating abilities. But net income ratio is widely accepted as the most conservative of the above-mentioned ratios.
Net income in simple words is the total earnings that a company makes after deducting all the expenses from its sales revenue. Net income ratio or net profit margin is a ratio of a company’s net income and sales revenues. A high net income ratio shows that the company is able to effectively manage all its business activities, including production, administration, selling, etc.
Screening Parameters
Net income ratio is one of our key screening parameters. However, to find out the sure winners, we have added a few additional criteria to arrive at an efficient strategy.
Zacks Rank Equal to #1: No matter whether the market is good 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 have narrowed down the universe of more than 7,421 stocks to only 11.
Here are four of the 11 stocks that qualified the screen:
Teledyne Technologies Incorporated (TDY - Free Report) is a provider of instrumentation, digital imaging, aerospace and defense electronics as well as engineered systems. Its 12-month net profit margin is 13%.
Medifast, Inc. (MED - Free Report) is a manufacturer and distributor of clinically proven healthy living products and programs. Its 12-month net profit margin is 11.4%.
PetroChina Company Limited is engaged in a broad range of petroleum-related activities, including exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing, including import and export, of crude oil and petroleum products. Its 12-month net profit margin is 3.2%.
Tilly's, Inc. (TLYS - Free Report) is a specialty retailer of casual apparel, footwear, accessories as well as hardgoods. Its 12-month net profit margin is 4.4%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge.
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.