Investors always look for companies with a high level of profitability, regardless of the current market situation. In this context, profitability analysis is used to identify a profitable business versus a loss making business. Profitability analysis is the best tool for measuring a company’s ability to deliver solid returns to investors even after covering all of its operating and non-operating costs.
Here we have used the concept of accounting ratios to assess the profitability of a business. There are a variety of profitability ratios, from which we have chosen the most effective and frequently used measure of profitability to determine a company’s bottom line.
Net income ratio
The net income ratio gives us the exact level of profitability of a business. It reflects the percentage of net profit over total revenue. Using the net income ratio, one can determine the efficiency of a business in dealing with operating and non-operating expenses from income. A higher net income ratio usually involves the ability of a business to generate significant income and successfully manage all business functions.
The net income ratio is not the only indicator of future winners. We have therefore added some additional criteria to arrive at a winning strategy.
Zack rank equal to # 1: Whether the market is good or bad, stocks with a Zacks # 1 (strong buy) ranking have a proven history of outperforming. You can see The full list of today’s Zacks # 1 Rank stocks here.
Last 12 months sales and higher net income growth than industry X: Stocks that have outperformed the sector in sales and net income growth over the past 12 months are well positioned to perform well.
Net income ratio for the last 12 months greater than X Industry: A high net income ratio indicates a solid profitability of a business.
High Purchase percentage score above 70: This indicates that 70% of current broker recommendations for action are strong buys.
These few parameters reduced the universe from over 7,685 stocks to just 15.
Here are four of the 15 actions that qualified the screening:
Atlas Air in the worldHoldings, Inc. AAWW is the parent company of Atlas Air and Polar Air Cargo, which together operate a fleet of cargo aircraft. AAWW is primarily involved in airport-to-airport heavy cargo air transportation.
Through its main subsidiaries, Atlas Air Worldwide offers scheduled air freight service, freight charters, military charters and rental of ACMI aircraft in which customers receive an aircraft, crew, maintenance and service. dedicated insurance on a long term rental basis. AAWW’s 12-month net profit margin is 13.2%.
Boot Barn Holdings, Inc. BOOT operates as a chain of lifestyle stores dedicated to western and professional footwear, clothing and accessories. The BOOT product line includes boots, jeans, western shirts, cowboy hats, belts and belt buckles, as well as western style jewelry and accessories, among other items.
Boot Barn’s sells its products through bootbarn.com, an e-commerce site. Its 12-month net profit margin is 11.2%.
Churchill Downs Incorporated CHDN is a US online racing, betting and video game company that operates through three segments: Churchill Downs, Online Wagering and Gaming.
Churchill Downs ran thoroughbred races and featured America’s biggest race, the Kentucky Derby. CHDN’s 12-month net profit margin is 14.8%.
Equinor ASA EQNR is engaged in the exploration, production, transportation, refining and marketing of petroleum and petroleum products, and other forms of energy, as well as other businesses in Norway and around the world.
Equinor actively invests in renewable projects, including the generation of electricity from solar and wind energy. EQNR reported strong quarterly results in the third quarter, driven by higher commodity prices and intensified operations at the Johan Sverdrup oilfield. Its 12-month net profit margin is 4.04%.
You can get the rest of the stocks on this list by signing up now for your 2 week free trial of the Research Assistant and start using this screen in your own trading. In addition, you can also create your own strategies and test them out before you get into investing.
The Research Assistant is a great place to start. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your research assistant trial today. And the next time you read an economic report, open the research assistant, plug in your findings, and see what gems come out of it.
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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
Disclosure: Information on the performance of Zacks’ portfolios and strategies can be found at: https://www.zacks.com/performance.
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