Focus On 5 Best Profitable Stocks for Desirable Returns
A profitable company has ample sales revenue not only to meet all its operating and non-operating expenses but also to generate strong returns for investors. Although it is necessary for a profitable company to have strong fundamentals, several studies show that healthy profits usually lead to satisfactory investor returns.
Here, the profitability of the company is measured using profitability ratios. There are a variety of profitability ratios, out of which we have chosen the most widely used and easy to understand determinant - net income ratio.
Net Income Ratio
Net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenue. Using net income ratio one can determine a company's effectiveness to pay for its operating and non-operating expenses from its sales revenue. A higher net income ratio usually implies a company's ability to generate ample sales revenue and successfully manage all its business functions.
Net income ratio is not the only indicator of future winners. As such, we have added a few additional criteria to arrive at a winning strategy.
Zacks Rank equal to #1: Only Zacks Rank #1 (Strong Buy) stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off. You can see the complete list of today's Zacks #1 Rank stocks here.
12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.
12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company's solid profitability.
% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.
Here are five of the 10 stocks that qualified the screening:
SPS Commerce, Inc.SPSC is a provider of on-demand supply chain management solutions, providing integration, collaboration, connectivity, visibility and data analytics to its customers worldwide. It has an average four-quarter earnings surprise of 44.2%.
CryoLife Inc.CRY aims to manufacture and distribute medical devices globally. It has an average four-quarter earnings surprise of more than 100%.
FormFactor Inc.FORM develops, designs, manufactures, sells and supports high performance advanced semiconductor wafer probe cards. It has an average four-quarter earnings surprise of 22%.
Willdan Group, Inc.WLDN is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government. It has an average four-quarter earnings surprise of 18.7%.
LegacyTexas Financial Group Inc.LTXB is a bank holding company. The company's holdings include LegacyTexas Bank. It has an average four-quarter earnings surprise of 3.4%.
While backtesting over a two-year timeframe (October 24, 2014 to October 28, 2016), a portfolio following this strategy provided a total return of 29.4% compared with the S&P 500's return of 7.4%. Thus, this strategy may prove profitable for those looking to beat the markets.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.
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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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