Investors should always look for companies that offer strong returns even after assuming all operating and non-operating costs. In other words, they are looking for a profitable business rather than a loss-making business. Thus, we used the concept of accounting ratios to assess the profitability of a company. There are a variety of profitability ratios, from which we have chosen the most effective and frequently used measure of profitability to determine the overall performance of a business.
To this end, Malibu Boats MBUU, boot barn BOOT and Hudson Technologies HDSN was selected as the top pick with a high net income ratio.
Net income ratio
The net income ratio gives us the exact level of profitability of a company. It reflects the percentage of net income in relation to total turnover. Using the net income ratio, one can determine the efficiency of a business in covering operating and non-operating expenses from revenues. A higher net income ratio generally implies a company’s ability to generate significant revenue and successfully manage all business functions.
The net income ratio is not the only indicator of future winners. We have therefore added a few additional criteria to arrive at a winning strategy.
Zacks Rank equal to No. 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 full list of today’s Zacks #1 Rank stocks here.
Growth in sales and net income over the last 12 months greater than X industry: Stocks that have outperformed the sector in sales and net income growth over the past 12 months are well positioned to perform well.
Last 12 months net income ratio greater than X Industry: A high net income ratio indicates the solid profitability of a company.
Strong Buy review percentage over 70: This indicates that 70% of current broker recommendations for the stock are Strong Buy.
These few parameters reduced the universe from more than 7,685 stocks to only 13.
Here are three of the 13 actions that qualified the screening:
Malibu Boats operates as a designer, manufacturer and distributor of sports boats primarily in the United States. MBUU’s 12-month net profit margin is 12.6%.
Boot Barn operates as a chain of lifestyle stores devoted to western and work-related footwear, clothing and accessories. BOOT’s 12-month net profit margin is 12.9%.
Hudson Technologies is a leading provider of innovative solutions to recurring problems in the refrigeration industry. HDSN’s 12-month net profit margin is 25.9%.
You can get the rest of the stocks on this list by signing up for your free 2-week trial to Research Assistant now and start using this screen in your own trading. Moreover, you can also create your own strategies and test them before diving into investing.
The research assistant is a great starting point. It’s easy to use. Everything is in plain language. And it’s very intuitive. Start your search assistant trial today. And the next time you’re reading an economic report, open up the research assistant, plug in your findings, and see what gems come out.
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 the options mentioned herein. An affiliated investment adviser may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.
Disclosure: Information on the performance of Zacks portfolios and strategies is 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.