Yahoo Finance 4 Solid Net Profit Margin Stocks to Boost Portfolio Returns
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. Build-A-Bear Workshop BBW, Modine Manufacturing MOD, Constellium SE CSTM and Arcos Dorados Holdings ARCO boast solid net profit margins.
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, the 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 attracts investors and draws well-skilled employees, who eventually enhance business value.
Moreover, a higher net profit margin compared with its peers provides the company with 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 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 environments. 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 we discuss our four picks from the 33 stocks that qualified the screen:
Build-A-Bear Workshop is the leading and only national company providing a make-your-own stuffed animal interactive retail-entertainment experience. The stock sports a Zacks Rank of 1, at present, and has a VGM Score of B.
The Zacks Consensus Estimate for Build-A-Bear Workshop’s fiscal 2024 earnings has been revised upward by 25 cents to $3.46 per share in the past 30 days. BBW surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 17.4%.
Modine Manufacturing operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. This includes heat exchangers for cooling all types of engines, transmissions, auxiliary hydraulic equipment, air conditioning components used in cars, trucks, farm and construction machinery and equipment, and heating and cooling equipment for residential and commercial building HVAC (heating, ventilating, air conditioning and refrigeration equipment). The company currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Modine Manufacturing’s fiscal 2023 earnings has remained unchanged at $1.76 per share in the past 60 days. MOD surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 56.1%.
Constellium develops innovative, value-added aluminum products for aerospace, automotive and packaging markets and applications. The company currently sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for CSTM’s 2023 earnings has been revised upward to $1.33 per share from $1.05 in the past 30 days. Constellium surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 150.8%.
Arcos Dorados operates as a franchisee of McDonald's, with its operations divided in Brazil, the North Latin America division, South Latin America and the Caribbean division. It also runs quick-service restaurants in Latin America and the Caribbean. The company currently carries a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Arcos Dorados’ 2023 earnings has been revised upward by 5 cents to 66 cents per share in the past 30 days. ARCO surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 46%.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software.
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
Build-A-Bear Workshop, Inc. (BBW) : Free Stock Analysis Report
Modine Manufacturing Company (MOD) : Free Stock Analysis Report
Constellium SE (CSTM) : Free Stock Analysis Report
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
