The best way to evaluate a company’s ability to provide satisfactory returns to investors and maintain effective cost management is profitability analysis. Using this analysis, we can easily differentiate a profitable company from a loss-making one.
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: Only Zacks Rank #1 (Strong Buy) stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off. You can see the complete list of today’s Zacks #1 Rank stocks here.
12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.
12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.
% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.
These few parameters narrowed down the universe of over 7,895 stocks to only 10.
Here are five of the 10 stocks that qualified the screen:
Ligand Pharmaceuticals Incorporated LGND is a biopharmaceutical company. Its average four-quarter positive earnings surprise is 24.9%.
ArcelorMittal MT is an operator of steel manufacturing and mining facilities. The average four-quarter positive earnings surprise is 39.4%.
58.com Inc. WUBA is anoperator of online classifieds and listing platforms. The four-quarter positive earnings surprise averages 63.2%.
Ameresco, Inc. AMRC is an independent provider of comprehensive energy efficiency solutions. The average four-quarter positive earnings surprise is 12.1%.
Mammoth Energy Services, Inc. TUSK is an integrated oilfield service company. It has an average four-quarter positive earnings surprise of 14.7%.
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 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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58.com Inc. (WUBA) : Free Stock Analysis Report
Ligand Pharmaceuticals Incorporated (LGND) : Free Stock Analysis Report
ArcelorMittal (MT) : Free Stock Analysis Report
Ameresco, Inc. (AMRC) : Free Stock Analysis Report
MAMMOOTH ENERGY (TUSK) : Free Stock Analysis Report
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