4 Solid Net Profit Margin Stocks to Build an Exceptional Portfolio
Investors look at companies that consistently generate profits. In order to gauge the magnitude of profits, there is no better measure than the net profit margin.
A higher net margin highlights a company’s efficiency in translating sales into actual profits. Additionally, this metric provides insight into how a business is run and the headwinds hanging over it. DLH Holdings DLHC, Franklin Covey heart rate, Cowen Group COW and Fidelity National Securities Group FNF has strong net profit margins.
Net Profit Margin = Net Profit/Sales * 100.
Simply put, net profit is the amount a business keeps after deducting all costs, interest, depreciation, taxes, and other expenses. In fact, net profit margin can prove to be a powerful benchmark for assessing the strength of a company’s operations and its cost control measures.
In addition, a higher net profit is essential to reward stakeholders. Moreover, the strength of the metric attracts investors and attracts well-qualified employees, which ultimately increase the value of the company.
Additionally, a higher net profit margin than its peers gives the company a competitive edge.
Advantages and disadvantages
Net profit margin helps investors better understand a company’s business model in terms of pricing policy, cost structure, and manufacturing efficiency. Therefore, a high net profit margin is preferred by all classes of investors.
However, the net profit margin as an investment criterion has its share of pitfalls. The metric varies widely from industry to industry. Although net income is a key metric for measuring investment in traditional industries, it is not so important for technology companies.
In addition, the difference in accounting treatment of various items, particularly non-cash expenses such as amortization and stock-based compensation, makes comparison difficult.
Additionally, for companies that prefer to grow through debt rather than equity, the higher interest expense typically weighs on bottom line profit. In such cases, measurement is rendered ineffective, while analyzing the performance of a business.
The winning strategy
A healthy net profit margin and strong EPS growth are the two most sought-after elements in a business model.
Apart from these, we have added some criteria to ensure maximum return from this strategy.
Net margin 12 months – Most recent (%) greater than 0: A high net profit margin indicates strong profitability.
Percentage change in EPS F(0)/(F-1) greater than equal to 0: It indicates profit growth.
Average broker rating (1-5) equal to 1: A rating of #1 indicates extreme broker optimism on the stock.
Zacks rank less than or equal to 2: Stocks with a Zacks #1 (Strong Buy) or 2 (Buy) ranking generally perform better than their peers in all types of market environments. You can see the full 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 most upside potential.
Here we discuss our four picks from the 35 stocks that qualified the screen:
DLH Holdings serves customers throughout the United States as a full-service provider of healthcare, logistics, and engineering support services to the Department of Defense and federal agencies. The company currently sports a Zacks rating of 1 and a VGM score of A.
The Zacks consensus estimate for DLH Holdings’ fiscal 2022 earnings was revised up to $1.25 from $1.09 over the past 60 days. DLHC has exceeded the Zacks consensus estimate three times in the past four quarters while missing the same on one occasion, with the average surprise being 14.1%.
Franklin Covey is an international learning and performance solutions company dedicated to improving the effectiveness of individuals and organizations. The company currently has a Zacks rating of 1 and a VGM score of B.
The Zacks consensus estimate for Franklin Covey’s fiscal 2022 earnings was revised up to 76 cents from 60 cents in the past 30 days. FC stock has exceeded the Zacks consensus estimate three times in the past four quarters while missing the same on one occasion, with the average surprise being 311%.
Cowen Group, through its operating subsidiaries, provides investment banking, equity research, sales and trading, asset management and alternative asset management services to corporate and institutional investors in healthcare, technology, telecommunications, aerospace and defense, consumer and alternative energy sectors. This Zacks #1 ranked company currently has a VGM score of B.
The Zacks consensus estimate of $7.31 for the Cowen Group’s current-year earnings has moved 6.4% north in the past 30 days. COWN stock has exceeded the Zacks consensus estimate for the past four quarters, with the average surprise being 27.1%.
Fidelity National Securities Group is a leading provider of title insurance, specialty insurance and claims management services. The company currently sports a Zacks rating of 1 and a VGM score of B.
The Zacks consensus estimate for Fidelity National Title Group’s 2022 revenue was revised up to $5.90 from $5.64 in the past 60 days. FNF has exceeded the Zacks consensus estimate for the past four quarters, averaging 38.2%.
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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 the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.
Disclosure: Information on the performance of Zacks portfolios and strategies is available at: https://www.zacks.com/performance/.
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Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
Cowen Group, Inc. (COWN): Free Stock Analysis Report
Franklin Covey Company (FC): Free Stock Analysis Report
DLH Holdings Corp. (DLHC): Free Share Analysis Report
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