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Buy These 4 Stocks With Solid Net Profit Margins to Enhance Return
Investors seek companies that consistently generate profits. One of the best metrics to measure profitability is the net profit margin. This metric highlights a company's ability to convert sales into actual profits, providing insights into operational efficiency and management quality. Nomad Foods Limited NOMD, Natural Gas Services Group, Inc. NGS, Dave Inc. DAVE and Adtalem Global Education Inc. ATGE boast solid net profit margins.
Net Profit Margin = Net profit/Sales * 100
Net profit represents the amount retained after all expenses, including costs, interest, depreciation and taxes. A strong net profit margin indicates effective cost control and operational strength, which are crucial for rewarding stakeholders, and attracting investors and talented employees. Moreover, a higher net profit margin compared to 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, this metric varies across industries, making direct comparisons challenging. While it is vital for traditional industries, it might be less relevant for technology companies.
Differences in accounting practices, especially with regard to non-cash expenses like depreciation and stock-based compensation, further complicate comparisons. Additionally, companies that rely heavily on debt may show lower net profits due to high interest expenses, limiting the metric's effectiveness in evaluating 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.
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 31 stocks that qualified the screen:
Nomad Foods manufactures and distributes frozen foods primarily in the United Kingdom, Italy, Germany, Sweden, France and Norway. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Nomad Foods’ 2025 earnings has been revised upward by 8 cents to $2.07 per share over the past 60 days. NOMD surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 3.2%.
Natural Gas Services manufactures, fabricates, sells, rents and services natural gas compressors that enhance the production of natural gas wells. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Natural Gas Services’ 2025 earnings has been revised upward by 18.6% to $1.40 per share in the past 30 days. NGS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 34.8%.
Dave provides a banking app to build products in the financial space. The stock sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for Dave’s 2025 earnings has been revised upward by 3.9% to $8.74 per share in the past seven days. DAVE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 274.5%.
Adtalem Global Education is a leading healthcare education provider and workforce solutions innovator. The stock carries a Zacks Rank of 2 at present and a VGM Score of A.
The Zacks Consensus Estimate for Adtalem Global Education’s fiscal 2025 earnings has been revised upward by 4.8% to $6.52 per share in the past 30 days. ATGE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 18.4%.
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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/.
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. 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 UpWant 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
Dave Inc. (DAVE): Free Stock Analysis Report
Natural Gas Services Group, Inc. (NGS): Free Stock Analysis Report
Nomad Foods Limited (NOMD): Free Stock Analysis Report
Adtalem Global Education Inc. (ATGE): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).