Yahoo Finance Pick These 4 Solid Net Profit Margin Stocks for Better Returns
The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. GigaCloud Technology Inc. GCT, Dycom Industries Inc. DY, HNI Corporation HNI and Strategic Education, Inc. STRA 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, 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 not only attracts investors but also draws well-skilled employees who eventually enhance the value of a business.
Moreover, a higher net profit margin compared with its peers provides a 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 have picked four stocks — GigaCloud, Dycom Industries, HNI and Strategic Education — from the 21 stocks that qualified the screening.
GigaCloud is a pioneer of global end-to-end B2B ecommerce solutions for large parcel merchandise. The company's marketplace seamlessly connects manufacturers, primarily in Asia, with resellers, mainly in the United States, Asia and Europe, to execute cross-border transactions. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for GigaCloud’s 2024 earnings has moved 30.7% north in the past 30 days and currently stands at $2.98 per share. GCT surpassed the Zacks Consensus Estimate in each of the trailing three quarters, the average surprise being 42.3%.
Dycom Industries is a specialty contracting firm operating in the telecom industry. The company provides diverse services such as engineering, construction, maintenance and installation services for the cable and telephone companies. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Dycom Industries’ fiscal 2025 earnings has moved up 7.1% to $7.13 per share in the past 60 days. DY surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 53.9%.
HNI provides products and solutions for the home and workplace environments. HNI is a leading global provider and designer of office furniture and the leading manufacturer and marketer of hearth products. At present, the stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for HNI’s 2024 earnings has remained unchanged at $2.93 per share in the past 60 days. HNI surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 67.5%.
Strategic Education, through its subsidiaries Strayer University and New York Code and Design Academy (“NYCDA”), provides a range of post-secondary education and other academic programs in the United States. NYCDA is a New York City-based provider of web and application software development courses. At present, the stock flaunts a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Strategic Education’s current-year earnings has moved up to $4.83 per share from $4.61 in the past seven days. STRA surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 36.2%.
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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 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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Strategic Education Inc. (STRA) : Free Stock Analysis Report
Dycom Industries, Inc. (DY) : Free Stock Analysis Report
HNI Corporation (HNI) : Free Stock Analysis Report
GigaCloud Technology Inc. (GCT) : Free Stock Analysis Report
