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5 Profitable Stocks to Boost Returns Using Net Income Ratio

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·3 min read
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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 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 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.

Screening Parameters

Net income ratio is one of our key screening parameters. However, to find out the sure winners, we have added a few additional criteria to arrive at an efficient 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 more than 7,665 stocks to only 11.

Here are five of the 11 stocks that qualified the screening:

Build-A-Bear Workshop, Inc. BBW is a multi-channel retailer of plush animals and related products. Its 12-month net profit margin is 7.8%.

Crocs, Inc. CROX is a designer, developer, and manufacturer of casual footwear for men, women and children. Its 12-month net profit margin is 35.4%.

Lifetime Brands, Inc. LCUT is the designer, marketer and distributor of kitchenware, cutlery & cutting boards, bakeware & cookware, pantryware & spices, tabletop and bath accessories. Its 12-month net profit margin is 9.4%.

Devon Energy Corporation DVN is engaged in the exploration, development and production of oil, natural gas, and natural gas liquids in the United States. Its 12-month net profit margin is 4.2%.

SkyWest, Inc. SKYW is a regional airline in the United States and an aircraft leasing company. Its 12-month net profit margin is 3.8%.

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 backtest 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.

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.


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Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
Crocs, Inc. (CROX) : Free Stock Analysis Report
 
BuildABear Workshop, Inc. (BBW) : Free Stock Analysis Report
 
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
Lifetime Brands, Inc. (LCUT) : Free Stock Analysis Report
 
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Zacks Investment Research