Smart investors always look for a profitable business rather than a loss-making business. Thus, they aim for companies that offer solid returns to investors even after assuming all operating and non-operating costs. Here we have used the concept of accounting ratios to assess the profitability of a business.
There are a variety of profitability ratios, from which we have chosen the most effective and frequently used measure of profitability to determine the overall performance of a business.
To this end, Boot Barn (BOOT – Free Report), Nova Measuring Instruments (NVMI – Free report) and Vaalco Energy (EGY – Free Report) were selected as the top picks with a high net income ratio.
Net income ratio
The net income ratio gives us the exact level of profitability of a company. It reflects the percentage of net income in relation to total turnover. Using the net income ratio, one can determine the efficiency of a business in covering operating and non-operating expenses from revenues. A higher net income ratio generally implies a company’s ability to generate significant revenue and successfully manage all business functions.
The net income ratio is not the only indicator of future winners. We have therefore added a few additional criteria to arrive at a winning strategy.
Zacks Rank equal to No. 1: Whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven track record of outperformance. You can see the full list of today’s Zacks #1 Rank stocks here.
Growth in sales and net income over the last 12 months greater than X industry: Stocks that have outperformed the sector in sales and net income growth over the past 12 months are well positioned to perform well.
Last 12 months net income ratio greater than X Industry: A high net income ratio indicates the solid profitability of a company.
Strong Buy review percentage above 70: This indicates that 70% of current broker recommendations for the stock are Strong Buy.
These few parameters reduced the universe from more than 7,685 stocks to only 13.
Here are three of the 13 actions that qualified the screening:
boot barn is a chain of lifestyle stores devoted to western and work-related footwear, clothing and accessories. BOOT’s 12-month net profit margin is 12.9%.
Nova measuring instruments is a provider of metrology solutions for advanced process control used in semiconductor manufacturing. NVMI’s 12-month net profit margin is 12.9%.
Vaalco Energy is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas. EGY’s 12-month net profit margin is 36.9%.
You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.
The research assistant is a great starting point. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your search assistant trial today. And the next time you’re reading an economic report, open up the research assistant, plug in your findings, and see what gems come out.
Click here to sign up for a free trial of Research Assistant 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 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.