4 Profitable Stocks to Boost Returns Using Net Income Ratio

Investors always look for companies with a high level of profitability regardless of the present market condition. In this context, the 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 a 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.

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: 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 7,685 stocks to only 15.

Here are four of the 15 stocks that qualified the screening:

Atlas Air WorldwideHoldings, Inc. AAWW is the parent company of Atlas Air and Polar Air Cargo, which together operate a fleet of freighter aircrafts. AAWW is principally involved in the airport-to-airport air transportation of heavy freight.

Through its principal subsidiaries, Atlas Air Worldwide offers scheduled air cargo service, cargo charters, military charters, and ACMI aircraft leasing in which customers receive a dedicated aircraft, crew, maintenance and insurance on a long-term lease basis. The 12-month net profit margin of AAWW is 13.2%.

Boot Barn Holdings, Inc. BOOT operates as a lifestyle retail chain devoted to western and work-related footwear, apparel as well as accessories. BOOT’s product range includes boots, denim, western shirts, cowboy hats, belts and belt buckles, and western-style jewelry and accessories, among other items.

Boot Barn's sells its products through bootbarn.com, an e-commerce website.  Its 12-month net profit margin is 11.2%.

Churchill Downs Incorporated CHDN is a racing, online wagering, and a gaming entertainment company in the United States that operates through three segments: Churchill Downs, Online Wagering and Gaming.

Churchill Downs has conducted Thoroughbred racing and presented America's greatest race, the Kentucky Derby. The 12-month net profit margin of CHDN is 14.8%.

Equinor ASA EQNR is engaged in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products, and other forms of energy, as well as other businesses in Norway and across the world.

Equinor is actively investing in renewable projects, comprising power generation from solar and wind energy. EQNR reported strong quarterly results in the third quarter, thanks to higher commodity prices and ramping up operations at Johan Sverdrup oil field. Its 12-month net profit margin is 4.04%.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
 
Churchill Downs, Incorporated (CHDN) : Free Stock Analysis Report
 
Atlas Air Worldwide Holdings (AAWW) : Free Stock Analysis Report
 
Equinor ASA (EQNR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research