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6 Top-Rated Stocks With Solid Net Profit Margin

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·6 min read
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Investors eye businesses that generate profits on a regular basis. In order to gauge the extent of profits, there is no better metric than net profit margin.

A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric lends an insight into how well a company is run and the headwinds weighing on it.

Net Profit Margin = Net profit/Sales * 100.

In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength of a company’s operations and its cost-control measures.

Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance a business’ value.

Moreover, a higher net profit margin compared with its peers provides the company a competitive edge.

Pros and Cons

Net profit margin helps investors gain clarity on a company’s business model in terms of pricing policy, cost structure and manufacturing efficiency. Hence, a strong net profit margin is preferred by all classes of investors.

However, net profit margin as an investment criterion has its own share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.

In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.

Furthermore, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective, while analyzing a company’s performance.

The Winning Strategy

A healthy net profit margin and solid EPS growth are the two most sought-after elements in a business model.

Apart from these, we have added a few criteria to ensure maximum returns from this strategy.

Screening Parameters

Net Margin 12 months – Most Recent (%) greater than equal to 0: High net profit margin indicates solid profitability.

Percentage Change in EPS F(0)/(F-1) greater than equal to 0: It indicates earnings growth.

Average Broker Rating (1-5) equal to 1: A rating of #1 indicates brokers’ extreme bullishness on the stock.

Zacks Rank less than or equal to 2: Stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) generally perform better than their peers in all types of market environment. You can see the complete list of today’s Zacks #1 Rank stocks here.

VGM Score of A or B: Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, offer the best upside potential.

Here are six of the 18 stocks that qualified the screen:

Lakeland Industries, Inc. LAKE is a worldwide manufacturer and seller of industrial protective clothing and accessories. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate for fiscal 2021 earnings has been revised upward to $4.09 from $3.29 in 30 days’ time.

Piper Sandler Companies PIPR is a focused securities firm dedicated to delivering superior financial advice, investment products and transaction execution within selected sectors of the financial services marketplace. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A. The Zacks Consensus Estimate for 2020 earnings has been revised upward to $8.11 from $7.20 in the past 30 days.

Aviat Networks, Inc. AVNW, previously known as Harris Stratex Networks, Inc., is a global supplier of wireless network solutions and network management software, backed by a suite of professional services and support. The stock presently sports a Zacks Rank of 1 and has a VGM Score of B. The Zacks Consensus Estimate of $2.95 for fiscal 2021 earnings moved 18% north in 60 days’ time.

Meridian Bioscience, Inc. VIVO is a fully integrated life-science company that manufactures, markets and distributes a broad range of innovative diagnostic test kits, purified reagents and biopharmaceutical enabling technologies that help deliver answers. This Zacks Rank #1 stock currently has a VGM Score of B. The Zacks Consensus Estimate of $1.19 for current-year earnings has moved up by 12 cents in 30 days’ time.

Carriage Services, Inc. CSV is a leading provider of death care services and products in the United States. It offers a complete range of services relating to funerals, burials and cremations, including the use of funeral homes and motor vehicles, the performance of cemetery interment services and the management and maintenance of cemetery grounds. At present, the stock carries a Zacks Rank of #2 and has a VGM Score of A. The Zacks Consensus Estimate for ongoing-year earnings has been revised 17.4% upward to $1.82 over the past 60 days.

WidePoint Corporation WYY specializes in providing systems engineering, integration and information technology services to the government sector and commercial markets. The stock carries a Zacks Rank of 2 and has a VGM Score of A, at present. The Zacks Consensus Estimate of 30 cents for this year’s earnings moved up by 50% over the past 60 days.

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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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WidePoint Corporation (WYY) : Free Stock Analysis Report
 
Meridian Bioscience Inc. (VIVO) : Free Stock Analysis Report
 
Carriage Services, Inc. (CSV) : Free Stock Analysis Report
 
Aviat Networks, Inc. (AVNW) : Free Stock Analysis Report
 
Lakeland Industries, Inc. (LAKE) : Free Stock Analysis Report
 
Piper Sandler Companies (PIPR) : Free Stock Analysis Report
 
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