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Tap These 5 Stocks That Boast Substantial Net Profit Margin

Zacks Equity Research
PG&E Corp's (PCG) Q1 earnings are expected to get hit by wildfire related costs.

As the primary motive of any investor is to choose stocks that generate maximum returns, companies raking in huge profits make solid picks.

Net profit margin is the most effective way to measure a company’s profitability. A proper analysis of the same shows how well a company is run in the face of headwinds.

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 in a company operations and 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 that eventually add to the value of the business.

Moreover, a higher net profit margin compared to its peers lends the company a competitive edge.

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 cost-control measures.

Also, higher net profit is essential for rewarding stakeholders. Net margin helps investors judge the risk involved in an investment. Creditors also view it as crucial to determining a company’s ability to pay off debts.

Moreover, a higher net profit margin compared to its peers lends 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.

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

Further, 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 monthsMost 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 five of the 20 stocks that qualified the screen:

Headquartered in Evansville, IN, Shoe Carnival, Inc. SCVL offers a broad assortment of moderately priced dress, casual and athletic footwear for men, women and children with emphasis on national and regional brands. The Zacks Consensus Estimate for fiscal 2020 bottom line of $2.67 has inched 1.5% up in the past 30 days. The stock has a Zacks Rank of 1 and a VGM Score of A.

Black Mountain, NC-based Ingles Markets, Inc. IMKTA is a leading supermarket chain with operations in the Southeast United States. The Zacks Consensus Estimate of $3.20 for fiscal 2019 earnings has been flat in the past 30 days. The stock has a Zacks Rank of 1 and a VGM Score of A.

Domiciled in St. George, UT, SkyWest, Inc. SKYW operates a regional airline in the United States. The stock has a Zacks Rank of 1 and a VGM Score of A. The Zacks Consensus Estimate for 2019 earnings of $5.78 has been revised 5.3% upward in the past 30 days.

Fremont, CA-headquarterd SYNNEX Corporation SNX is a global information technology supply chain services company, offering a comprehensive range of services to original equipment manufacturers, software publishers and reseller customers worldwide. The stock has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for fiscal 2019 earnings per share has been raised 1.2% to $11.81 over the last 30 days.

Stamford, CT-based Information Services Group, Inc. III is a technology research and advisory company with global operations. The stock has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for fiscal 2019 earnings has been reiterated at 40 cents in the past 30 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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SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
SYNNEX Corporation (SNX) : Free Stock Analysis Report
 
Ingles Markets, Incorporated (IMKTA) : Free Stock Analysis Report
 
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