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: 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 7,876 stocks to only 10.
Here are five of the 10 stocks that qualified the screen:
Weight Watchers International, Inc. WTW is a global weight management services provider. Its average four-quarter positive earnings surprise is more than 100%.
Attunity Ltd. ATTU is a global seller of data integration and Big Data management software solutions. Its average four-quarter positive earnings surprise is 80%.
Solaris Oilfield Infrastructure, Inc. SOI is a seller of patented mobile proppant management systems. Its average four-quarter positive earnings surprise is 3.8%.
Helix Energy Solutions Group, Inc. HLX is an offshore energy services company. It has an average four-quarter positive earnings surprise of 66.7%.
Rush Enterprises, Inc. RUSHA is an integrated retailer of commercial vehicles. Its average four-quarter positive earnings surprise is 34.5%.
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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Rush Enterprises, Inc. (RUSHA) : Free Stock Analysis Report
Attunity Ltd. (ATTU) : Free Stock Analysis Report
Helix Energy Solutions Group, Inc. (HLX) : Free Stock Analysis Report
Weight Watchers International Inc (WTW) : Free Stock Analysis Report
Solaris Oilfield Infrastructure, Inc. (SOI) : Free Stock Analysis Report
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