Investors focus on businesses that consistently generate profits. Net profit margin is key to assessing profitability. A higher net margin indicates a company's efficiency in converting sales into actual profits, providing insights into its operational effectiveness and the challenges it faces. Companies like Mission Produce, Inc. AVO, OppFi Inc. OPFI, StoneX Group Inc. SNEX and Climb Global Solutions, Inc. CLMB exhibit strong net profit margins.
Net Profit Margin = Net Profit / Sales * 100
Net profit represents the amount a company retains after all costs, interest, depreciation, taxes, and other expenses are deducted. The net profit margin can be a valuable indicator of a company's operational strength and cost management. Higher net profits are crucial for rewarding stakeholders and attracting skilled employees, ultimately enhancing business value. Additionally, a higher net profit margin compared to competitors provides a competitive edge.
Pros and Cons of Net Profit Margin
Net profit margin offers investors clarity on a company’s business model, including its pricing policy, cost structure and manufacturing efficiency. A strong net profit margin is preferred by all types of investors. However, this metric has its limitations. It varies significantly across industries, and while net income is crucial in traditional sectors, it is less relevant for technology companies. Differences in accounting treatments, particularly for non-cash expenses like depreciation and stock-based compensation, can complicate comparisons.
Moreover, companies that grow through debt rather than equity funding incur higher interest expenses, which can negatively impact net profit. In such cases, the net profit margin becomes less effective for evaluating performance. Despite these challenges, net profit margin remains a fundamental measure for understanding a company's profitability and operational efficiency.
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 30 stocks that qualified the screen:
Mission Produce sources, produces, packs, distributes and markets avocados, mangoes and blueberries principally in the United States and internationally. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Mission Produce’s fiscal 2025 earnings has been revised upward by 44.8% to 42 cents per share in the past 30 days. AVO surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 1,154%.
OppFi provides a financial technology platform that powers banks to help everyday consumers gain access to credit. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for OppFi’s 2025 earnings has been revised upward by 14 cents to $1 per share in the past 30 days. OPFI surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 67.7%.
StoneX Group provides financial services. Through its subsidiaries, the company offers execution, post-trade settlement, clearing and custody services. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for StoneX Group’s fiscal 2025 earnings has moved 59 cents north in the past 60 days and currently stands at $8.04 per share. SNEX surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12.9%.
Climb Global Solutions is a value-added IT distribution and solutions company specializing in emerging and disruptive technologies. The company provides IT distribution and solutions for emerging companies, principally in the security, data management, connectivity, storage & HCI, virtualization & cloud, and software & ALM industries. The stock flaunts a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Climb Global Solutions’ 2024 earnings has been revised upward to $4.14 per share from $3.28 in the past 60 days. CLMB surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing on one occasion, the average surprise being 51.1%.
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 back-testing 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/.
Research Chief Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Free: See Our Top Stock And 4 Runners UpStoneX Group Inc. (SNEX) : Free Stock Analysis Report
Mission Produce, Inc. (AVO) : Free Stock Analysis Report
OppFi Inc. (OPFI) : Free Stock Analysis Report
Climb Global Solutions, Inc. (CLMB) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
