Investors always look for companies with a high level of profitability regardless of the present market condition. In this context, profitability analysis is used to identify a profitable company over a loss-making one. Profitability analysis is the best tool to measure the ability of the company to offer sturdy returns to investors even after meeting all its operating and non-operating costs.
Here, we have used the concept of accounting ratios to evaluate a company’s profitability. There is a variety of profitability ratios, from which we have chosen the most successful and frequently used profitability metric to determine the bottom-line performance of a company.
Net Income Ratio
Net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using net income ratio, one can determine a company’s effectiveness to meet operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.
Net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning 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 over 6,817 stocks to only four.
Here are the four stocks that qualified the screen:
PennyMac Financial Services, Inc. PFSI is engaged in mortgage banking and investment management activities. Its 12-month net profit margin is 33.5%.
Meta Financial Group, Inc. CASH is the holding company for MetaBank. Its 12-month net profit margin is 22.1%.
BWX Technologies, Inc. BWXT is a manufacturer and seller of nuclear components. Its 12-month net profit margin is 13.4%.
Helen of Troy Limited HELE is a designer and distributor of a portfolio of consumer products. Its 12-month net profit margin is 8.9%.
You can sign 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 test 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.
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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.
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Helen of Troy Limited (HELE) : Free Stock Analysis Report
Meta Financial Group, Inc. (CASH) : Free Stock Analysis Report
PennyMac Financial Services, Inc. (PFSI) : Free Stock Analysis Report
BWX Technologies, Inc. (BWXT) : Free Stock Analysis Report
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