Investors should prioritize companies that generate strong returns after accounting for operating and non-operating expenses. As a result, profitable businesses are more attractive than those operating at a loss. To assess profitability, analysts rely on accounting ratios, with the most widely used measure being the net income ratio, which evaluates a company’s bottom-line performance.
To that end, Micron Technology, Inc. MU, Ralph Lauren Corporation RL, and Modine Manufacturing Company MOD have been selected as the top profitable picks because of their high net income ratios and strong upside potential.
Net Income Ratio Explained
The net income ratio indicates a company's exact profitability level. It reflects the percentage of net income to total sales revenues. Using the net income ratio, one can determine a firm’s effectiveness in meeting operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.
Screening Parameters Using Research Wizard:
The 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: 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: A 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 the universe of more than 7,685 stocks to only 10.
Here are three of the 10 stocks that qualified for the screening:
Micron Technology
Micron Technology designs, manufactures, and sells memory and storage products worldwide. The 12-month net profit margin of MU is 28.2%. The company’s expected earnings growth rate for the current year is 307.5% (read more: 2 AI Stocks Soaring Over 400% That Could Be the Next NVIDIA).
Ralph Lauren
Ralph Lauren designs and sells lifestyle products worldwide. RL’s 12-month net profit margin is 11.7%. The company’s expected earnings growth rate for the current year is 30.5%.
Modine Manufacturing
Modine Manufacturing designs and manufactures mission-critical thermal solutions worldwide. The 12-month net profit margin of MOD is 3.4%. The company’s expected earnings growth rate for the current year is 18.8%.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
