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4 Solid Net Profit Margin Stocks to Strengthen Your Portfolio
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The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. Virco Manufacturing Corporation (VIRC - Free Report) , HNI Corporation (HNI - Free Report) , Great Lakes Dredge & Dock Corporation (GLDD - Free Report) and Teekay Tankers Ltd. (TNK - Free Report) boast solid net profit margins.
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 the value of a business.
Moreover, a higher net profit margin compared with its peers provides a company with 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 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 environments. 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, we have picked four stocks — Virco Manufacturing, HNI, Great Lakes Dredge & Dock and Teekay Tankers — from the 20 stocks that qualified the screening.
Virco Manufacturing designs, produces and distributes quality furniture for the contract and education markets worldwide. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Virco Manufacturing’s fiscal 2025 earnings has moved 16.3% north in the past 60 days and currently stands at $1.86 per share. VIRC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 74.9%.
HNI provides products and solutions for the home and workplace environments. HNI is a leading global provider and designer of office furniture. It is also the leading manufacturer and marketer of hearth products. At present, the stock carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for HNI’s 2024 earnings has remained unchanged at $3.10 per share in the past 60 days. HNI surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 67.5%.
Great Lakes Dredge & Dock is the largest provider of dredging services in the United States, conducting business to maintain and deepen shipping channels, reclaim land from the ocean and renourish storm-damaged coastline. The company also conducts around 25% of its operations internationally, with a strong focus on the Middle East. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Great Lakes Dredge & Dock’s 2024 earnings has remained unchanged at 72 cents per share over the past 30 days. GLDD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 184.3%.
Teekay Tankers provides international marine transportation of crude oil. The stock currently carries a Zacks Rank of 2 and has a VGM Score of B.
The Zacks Consensus Estimate for Teekay Tankers’ 2024 earnings has been revised upward by 3 cents to $14.70 per share in the past 30 days. TNK surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average negative surprise being 6.3%.
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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4 Solid Net Profit Margin Stocks to Strengthen Your Portfolio
The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. Virco Manufacturing Corporation (VIRC - Free Report) , HNI Corporation (HNI - Free Report) , Great Lakes Dredge & Dock Corporation (GLDD - Free Report) and Teekay Tankers Ltd. (TNK - Free Report) boast solid net profit margins.
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 the value of a business.
Moreover, a higher net profit margin compared with its peers provides a company with 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 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 environments. 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, we have picked four stocks — Virco Manufacturing, HNI, Great Lakes Dredge & Dock and Teekay Tankers — from the 20 stocks that qualified the screening.
Virco Manufacturing designs, produces and distributes quality furniture for the contract and education markets worldwide. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Virco Manufacturing’s fiscal 2025 earnings has moved 16.3% north in the past 60 days and currently stands at $1.86 per share. VIRC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 74.9%.
HNI provides products and solutions for the home and workplace environments. HNI is a leading global provider and designer of office furniture. It is also the leading manufacturer and marketer of hearth products. At present, the stock carries a Zacks Rank #2 and has a VGM Score of A.
The Zacks Consensus Estimate for HNI’s 2024 earnings has remained unchanged at $3.10 per share in the past 60 days. HNI surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 67.5%.
Great Lakes Dredge & Dock is the largest provider of dredging services in the United States, conducting business to maintain and deepen shipping channels, reclaim land from the ocean and renourish storm-damaged coastline. The company also conducts around 25% of its operations internationally, with a strong focus on the Middle East. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Great Lakes Dredge & Dock’s 2024 earnings has remained unchanged at 72 cents per share over the past 30 days. GLDD surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 184.3%.
Teekay Tankers provides international marine transportation of crude oil. The stock currently carries a Zacks Rank of 2 and has a VGM Score of B.
The Zacks Consensus Estimate for Teekay Tankers’ 2024 earnings has been revised upward by 3 cents to $14.70 per share in the past 30 days. TNK surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average negative surprise being 6.3%.
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/.