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4 Solid Net Profit Margin Stocks Worth Buying to Boost Returns
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Investors focus on businesses that consistently generate profits. Net profit margin is key to assessing profitability. A higher net margin indicates a company's efficiency in converting sales into actual profits, providing insights into its operational effectiveness and the challenges it faces. Companies like Euroseas Ltd. (ESEA - Free Report) , Qifu Technology, Inc. (QFIN - Free Report) , RCM Technologies, Inc. (RCMT - Free Report) and Steelcase Inc. (SCS - Free Report) exhibit strong net profit margins.
Net Profit Margin = Net Profit / Sales * 100
Net profit represents the amount a company retains after all costs, interest, depreciation, taxes, and other expenses are deducted. The net profit margin can be a valuable indicator of a company's operational strength and cost management. Higher net profits are crucial for rewarding stakeholders and attracting skilled employees, ultimately enhancing business value. Additionally, a higher net profit margin compared to competitors provides a competitive edge.
Pros and Cons of Net Profit Margin
Net profit margin offers investors clarity on a company’s business model, including its pricing policy, cost structure and manufacturing efficiency. A strong net profit margin is preferred by all types of investors. However, this metric has its limitations. It varies significantly across industries, and while net income is crucial in traditional sectors, it is less relevant for technology companies. Differences in accounting treatments, particularly for non-cash expenses like depreciation and stock-based compensation, can complicate comparisons.
Moreover, companies that grow through debt rather than equity funding incur higher interest expenses, which can negatively impact net profit. In such cases, the net profit margin becomes less effective for evaluating performance. Despite these challenges, net profit margin remains a fundamental measure for understanding a company's profitability and operational efficiency.
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 discuss our four picks from the 18 stocks that qualified the screen:
Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship owning interests of the Pittas family of Athens, Greece, which has been in the shipping business over the past 136 years. It operates in the dry cargo, dry bulk and container shipping markets. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Euroseas’ 2024 earnings has been revised upward by 13.2% to $14.99 per share in the past 30 days. ESEA surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 28.7%.
Qifu Technology is a credit-tech platform principally in China that provides a comprehensive suite of technology services to assist financial institutions and consumers and small & medium enterprises in the loan lifecycle, ranging from borrower acquisition, preliminary credit assessment, fund matching and post-facilitation services. The stock has a Zacks Rank of 1 at present and a VGM Score of A.
The Zacks Consensus Estimate for Qifu Technology’s 2024 earnings has been revised upward to $5.08 per share from $4.94 in the past 30 days. QFIN surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, the average surprise being 8.6%.
RCM Technologies is a national provider of business, technology and resource solutions in information technology and professional engineering to customers in corporate and government sectors. The stock currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for RCM Technologies’ 2024 earnings has been revised upward by 5 cents to $2.33 per share in the past 60 days. RCMT surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, the average surprise being 17.5%.
Steelcase is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services. The stock currently carries a Zacks Rank of 2 and has a VGM Score of A.
The Zacks Consensus Estimate for Steelcase’s fiscal 2025 earnings has been revised upward by 2 cents to $1.02 per share in the past 30 days. SCS surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 37.9%.
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.
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4 Solid Net Profit Margin Stocks Worth Buying to Boost Returns
Investors focus on businesses that consistently generate profits. Net profit margin is key to assessing profitability. A higher net margin indicates a company's efficiency in converting sales into actual profits, providing insights into its operational effectiveness and the challenges it faces. Companies like Euroseas Ltd. (ESEA - Free Report) , Qifu Technology, Inc. (QFIN - Free Report) , RCM Technologies, Inc. (RCMT - Free Report) and Steelcase Inc. (SCS - Free Report) exhibit strong net profit margins.
Net Profit Margin = Net Profit / Sales * 100
Net profit represents the amount a company retains after all costs, interest, depreciation, taxes, and other expenses are deducted. The net profit margin can be a valuable indicator of a company's operational strength and cost management. Higher net profits are crucial for rewarding stakeholders and attracting skilled employees, ultimately enhancing business value. Additionally, a higher net profit margin compared to competitors provides a competitive edge.
Pros and Cons of Net Profit Margin
Net profit margin offers investors clarity on a company’s business model, including its pricing policy, cost structure and manufacturing efficiency. A strong net profit margin is preferred by all types of investors. However, this metric has its limitations. It varies significantly across industries, and while net income is crucial in traditional sectors, it is less relevant for technology companies. Differences in accounting treatments, particularly for non-cash expenses like depreciation and stock-based compensation, can complicate comparisons.
Moreover, companies that grow through debt rather than equity funding incur higher interest expenses, which can negatively impact net profit. In such cases, the net profit margin becomes less effective for evaluating performance. Despite these challenges, net profit margin remains a fundamental measure for understanding a company's profitability and operational efficiency.
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 discuss our four picks from the 18 stocks that qualified the screen:
Euroseas was formed under the laws of the Republic of the Marshall Islands to consolidate the ship owning interests of the Pittas family of Athens, Greece, which has been in the shipping business over the past 136 years. It operates in the dry cargo, dry bulk and container shipping markets. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Euroseas’ 2024 earnings has been revised upward by 13.2% to $14.99 per share in the past 30 days. ESEA surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 28.7%.
Qifu Technology is a credit-tech platform principally in China that provides a comprehensive suite of technology services to assist financial institutions and consumers and small & medium enterprises in the loan lifecycle, ranging from borrower acquisition, preliminary credit assessment, fund matching and post-facilitation services. The stock has a Zacks Rank of 1 at present and a VGM Score of A.
The Zacks Consensus Estimate for Qifu Technology’s 2024 earnings has been revised upward to $5.08 per share from $4.94 in the past 30 days. QFIN surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, the average surprise being 8.6%.
RCM Technologies is a national provider of business, technology and resource solutions in information technology and professional engineering to customers in corporate and government sectors. The stock currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for RCM Technologies’ 2024 earnings has been revised upward by 5 cents to $2.33 per share in the past 60 days. RCMT surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching the same on one occasion, the average surprise being 17.5%.
Steelcase is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services. The stock currently carries a Zacks Rank of 2 and has a VGM Score of A.
The Zacks Consensus Estimate for Steelcase’s fiscal 2025 earnings has been revised upward by 2 cents to $1.02 per share in the past 30 days. SCS surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 37.9%.
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/.