Investors should look for companies that offer solid returns after meeting all operating and non-operating costs. Thus, it is a good idea to bet on a profitable company over a loss-making one.
Here, we have used the concept of accounting ratios to evaluate a company’s profitability. There are several profitability ratios, from which we have chosen the most successful and frequently used profitability metric to determine a company’s bottom-line performance.
To that end, Option Care Health OPCH, Merchants Bancorp MBIN, Teekay Tankers TNK, and GigaCloud Technology Inc. GCT have been selected as the top picks with a high net income ratio.
Net Income Ratio
The net income ratio gives us the exact profitability level of a company. 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
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 five.
Here are four of the five stocks that qualified for the screening:
Option Care Health provides infusion and home care management solutions. The 12-month net profit margin of OPCH is 6.2%.
Merchants Bancorp is a diversified bank holding company. The 12-month net profit margin of MBIN is 23.6%.
Teekay Tankers provides international marine transportation of crude oil. The 12-month net profit margin of TNK is 37.7%.
GigaCloud Technology pioneered global end-to-end B2B e-commerce solutions for large parcel merchandise. The 12-month net profit margin of GCT is 13.4%.
You can get the rest of the stocks on this list by signing 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.
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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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Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
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Option Care Health, Inc. (OPCH) : Free Stock Analysis Report
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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.
