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5 Stocks With Solid Net Profit Margin to Enrich Your Portfolio

Let's take a look at the five top-ranked stocks - TMST, OSS, FNF, CTRN and MODV - with stellar net profit margins for a winning portfolio.

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This story originally appeared on Zacks

Net profit, also referred to as the bottom line, is one of the key tools that determines the financial health of an enterprise. The metric demonstrates a company’s ability to convert per dollar sales into profits.

- Zacks

A low-profit margin indicates higher risks, implying that a revenue drop might dampen profits, pushing the company in the red. TimkenSteel TMST, One Stop Systems OSS, Fidelity National Title Group FNF, Citi Trends CTRN and ModivCare MODV boasts solid net profit margins.

Net Profit Margin = Net profit/Sales * 100.

In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength of a company’s operations and its cost-control measures.

Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance businessvalue.

Moreover, a higher net profit margin compared with its peers provides the company 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, net profit margin, as an investment criterion, has its own share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.

In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.

Furthermore, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective, while analyzing a company’s 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 environment. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 five picks from the 42 stocks that qualified the screen:

TimkenSteel engages in manufacturing alloy steel, as well as carbon and micro-alloy steel. The company currently sports a Zacks Rank of 1 and has a VGM Score of A.

The Zacks Consensus Estimate for TimkenSteel’s 2021 earnings has been revised upward to $3.03 from $2.42 in the past 60 days. TMST has surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 59.2%.

One Stop Systems designs and manufactures ultra-dense high-performance computing systems for learning, oil and gas exploration, financial trading, media and entertainment, defense and traditional HPC applications. One Stop Systems currently sports a Zacks Rank #1 and has a VGM Score of A.

The Zacks Consensus Estimate of 22 cents for One Stop Systems’ current-year earnings has moved a penny north in the past seven days. OSS has surpassed the Zacks Consensus Estimate twice in the trailing four quarters while matches the same once and missed on one occasion, the average positive surprise being 100%.

Fidelity National Title Group is a leading provider of title insurance, specialty insurance and claims management services. The company sports a Zacks Rank of 1, at present, and has a VGM Score of A.

The Zacks Consensus Estimate for Fidelity National Title Group’s 2021 earnings has been revised upward to $7.29 from $6.87 in 60 days. FNF has surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 38.2%.

Citi Trends is a value-priced retailer of urban fashion apparel and accessories for the entire family. The company currently flaunts a Zacks Rank of 1 and has a VGM Score of A.

The Zacks Consensus Estimate for Citi Trends’ fiscal 2022 earnings has moved up to $7.12 from $6.50 in the past 30 days. CTRN has surpassed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 79.5%.

ModivCare is a technology-enabled healthcare services company. It provides a suite of integrated supportive care solutions for public and private players and their patients. The company currently sports a Zacks Rank of 1 and has a VGM Score of B.

The Zacks Consensus Estimate for ModivCare’s 2021 earnings has been revised upward to $7.53 from $6.41 in the past 30 days. MODV has surpassed the Zacks Consensus Estimate in three out of the trailing four quarters while missing the same on one occasion, the average surprise being 12.3%.

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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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Citi Trends, Inc. (CTRN): Free Stock Analysis Report

 

Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report

 

Timken Steel Corporation (TMST): Free Stock Analysis Report

 

One Stop Systems, Inc. (OSS): Free Stock Analysis Report

 

ModivCare Inc. (MODV): Free Stock Analysis Report

 

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