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5 Profitable Stocks Powered by High Net Income Ratio

Zacks Equity Research

Profitability analysis is generally used to measure a company’s ability to meet all its business-related costs and provide great returns to its investors. Although, a profitable company with weak fundamentals may fail to perform successfully, several studies have indicated that a profitable entity generally manages to offer satisfactory returns.

Here we have used the concept of accounting ratios to evaluate a company’s profitability. There are a variety of profitability ratios, from which we have chosen the most common and successful 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 revenue. Using net income ratio, one can determine a company’s effectiveness to pay for its operating and non-operating expenses from its revenue. A higher net income ratio usually implies a company’s ability to generate ample revenue and successfully manage all its business functions.

Screening Parameters

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.

Here are five of the six stocks that made it through the screen:

Ferrari N.V. RACE is engaged in designing, manufacturing and selling sports cars. It has an average four-quarter positive earnings surprise of 34.9%.

Preferred Bank PFBC is a major commercial bank in California focusing on the Chinese-American market. It has an average four-quarter positive earnings surprise of 5.1%.

Applied Optoelectronics, Inc. AAOI designs and develops advanced optical devices, packaged optical components, laser transmitters, etc. It has an average four-quarterpositive earnings surprise of more than 100%.

II-VI Incorporated IIVI designs, manufactures and markets optical and opto-electronic components, devices and materials for infrared, near-infrared, visible light, x-ray and gamma ray instrumentation. It has an average four-quarter positive earnings surprise of 59.2%.

Ebix, Inc. EBIX is one of the leading international suppliers of software and e-commerce solutions to the insurance industry. It has an average four-quarter positive earnings surprise of 14.4%.

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.

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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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