4 Buy-Ranked Stocks With Solid Net Profit Margin to Buy Now
Net profit, also referred to as the bottom line, is one of the key tools determining the financial health of an enterprise. The metric demonstrates a company’s ability to convert per dollar sales into profits.
A low profit margin indicates higher risks, implying that a revenue drop might dampen profits, thus pushing a company into the red. InterDigital, Inc. IDCC, EZCORP, Inc. EZPW, International Seaways, Inc. INSW and Teekay Tankers Ltd. TNK, however, 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 business value.
Moreover, a higher net profit margin compared with 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 discuss our four picks from the 23 stocks that qualified the screen:
InterDigital is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular as well as wireless 3G, 4G and IEEE 802-related products and networks. Currently, the stock flaunts a Zacks Rank #1 and a VGM Score of A.
The Zacks Consensus Estimate for InterDigital’s 2024 earnings has been revised upward by 56 cents to $6.42 per share in the past 60 days. IDCC surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 170.5%.
EZCORP is engaged in establishing, acquiring and operating pawnshops that function as convenient sources of consumer credit and as value-oriented specialty retailers of primarily previously owned merchandise. The stock sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for EZCORP’s fiscal 2024 earnings has been revised upward by 8.2% to $1.05 per share in the past 60 days. EZCORP surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 27.7%.
International Seaways is a tanker company. It provides energy transportation services for crude oil and petroleum products. The stock flaunts a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for International Seaways’ 2024 earnings has been revised upward by 9.9% to $9.08 per share in the past 30 days. INSW surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12.6%.
Teekay Tankers provides international marine transportation of crude oil. The stock currently carries a Zacks Rank of 2 and has a VGM Score of A.
The Zacks Consensus Estimate for Teekay Tankers’ 2024 earnings has been revised downward by 80 cents to $13.20 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 surprise being 2.8%.
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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_disclosure/.
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EZCORP, Inc. (EZPW) : Free Stock Analysis Report
InterDigital, Inc. (IDCC) : Free Stock Analysis Report
Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
International Seaways Inc. (INSW) : Free Stock Analysis Report
