Advertisement

4 Lucrative Stocks With Amazingly High Net Income Ratio

Profitability analysis is considered one of the best possible ways to assess the prospects of a company. This analysis is used to identify a profitable company from a loss-making one. In this context, it can be inferred that a profitable company generally has a high level of sales surplus, which will help it meet all its operating and non-operating costs and still offer high returns.

In this context, it may be wise to invest in shares of a company with a high level of profitability as it normally ensures high returns. As a result, the simplest and most transparent way of checking a company’s profitability is by using accounting ratios. There are a variety of profitability ratios, from which we have selected net income ratio here as it is the most useful and simplest profitability metric.

Net Income Ratio

There are a variety of profit ratios like gross income ratio, operating income ratio, pretax profit margin and net income ratio, which can be used to find out a company’s profit generating abilities. But net income ratio is widely accepted as the most conservative of the above-mentioned ratios.

Net income in simple words is total earnings a company makes after deducting all the expenses from its sales revenue. Net income ratio or net profit margin is a ratio of a company’s net income and sales revenue. A high net income ratio shows that the company is able to effectively manage all its business activities, including production, administration, selling, etc.

Screening Parameters

Net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.

Zacks Rank Equal to #1: No matter whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.

Trailing 12-Month Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.

Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.

These few parameters have narrowed down the universe of over 6,810 stocks to only four.

Here are the four stocks that qualified the screen:

PennyMac Financial Services, Inc. PFSI is engaged in mortgage banking and investment management activities. Its 12-month net profit margin is 33.5%.

Texas Pacific Land Trust TPL conducts business through the sale and lease of lands owned by the company, retaining oil and gas royalties, temporary cash investments, and the overall management of the land owned by Texas Pacific. Its 12-month net profit margin is 60.2%.

MorphoSys AG MOR is engaged in the development and commercialization of antibodies and peptides for therapeutic applications. Its 12-month net profit margin is 37%.

Helen of Troy Limited HELE is a designer and distributor of a portfolio of consumer products. Its 12-month net profit margin is 9.8%.

You can sign up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge. 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
 
Helen of Troy Limited (HELE) : Free Stock Analysis Report
 
PennyMac Financial Services, Inc. (PFSI) : Free Stock Analysis Report
 
Texas Pacific Land Trust (TPL) : Free Stock Analysis Report
 
MorphoSys AG Unsponsored ADR (MOR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.