This week I want to focus on Sales Growth and Profit Margins.
While everybody understands sales, margins might bring up a few
And with this earnings season essentially over, now is the perfect
time to look at this.
So let's start at the beginning: first and foremost, sales are THE
most important thing to a company. Everything else stems from that.
Without sales, there really wouldn't be anything else to analyze.
And Sales Growth numbers show you how that company is growing.
However, just because sales are increasing, doesn't always mean
that profits are increasing too. Sales at the expense of profits
does not work. So paying attention to Profit Margins is the next
thing we're going to want to look at.
Margin is simply a ratio and the calculation is:
Net Income divided by Sales
So if a Company's margin is 15% for instance, that means the
Company's net income is 15 cents for every $1 dollar of sales it
But if a Company's expenses are growing faster than their sales,
this'll reduce their margins.
In general, a company with increasing margins is becoming more
profitable and is better managed, i.e., their costs are under
So continue to look at their sales numbers. And of course, look at
their earnings too. But take a look at their profit margins as
well. Are they going up or down? In other words, are they making
more money on each dollar of sales they make, or less? This is
important stuff to know, and can make a huge difference in your
portfolio's bottom line.
Parameters for this week's screen:
12 Month Trailing Sales Growth (Current / 1 Quarter Ago)
greater than their relevant Industry median
(Looking for the top companies in their industries.)
Current Net Margin greater than or equal to 5 Yr. Avg.
(Steady to increasing Net Profits is what we're after.)
Current Net Margin greater than or equal to Net Margin
from 1 Quarter Ago
(If a company's profit margin fell last quarter, there's a chance
it might fall yet again. So we're excluding those companies whose
margins fell in the previous quarter.)
Zacks Rank equal to 1 (Strong Buy)
(Only the top Zacks Ranked stocks can get thru.)
Here are 5 stocks that passed this screen this week for 12/26/12:
American States Water
First American Financial
Standard Motor Products
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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.
AMER STATES WTR (AWR): Free Stock Analysis
FIRST AMER FINL (FAF): Free Stock Analysis
MDC HLDGS (MDC): Free Stock Analysis Report
STANDARD MOTOR (SMP): Free Stock Analysis
TYLER TECH INC (TYL): Free Stock Analysis
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