Break-even analysis is considered one of the best ways to assess a company’s prospects. This analysis helps identify a profitable business from a loss-making business. In this context, it can be deduced that a profitable business usually has a high sales surplus, which will help it cover all its operating and non-operating costs while providing high returns.
In this context, it may be wise to invest in shares of a company with a high level of profitability because it normally provides high returns. Therefore, the easiest and most transparent way to check a company’s profitability is to use accounting ratios. There are a variety of profitability ratios, of which we have selected the net income ratio because it is the most useful and the simplest.
To that end, Fulgent Genetics, Inc. FLGT, Atlas Air Worldwide Holdings, Inc. AAWW, Build-A-Bear Workshop, Inc. BBW, and Quidel Corporation QDEL were selected as top picks.
Net income ratio
There are a variety of profit ratios such as gross income ratio, operating income ratio, pre-tax profit margin, and net income ratio, which can be used to determine a company’s ability to generate benefits. But the net income ratio is widely accepted as the most conservative of the ratios mentioned above.
Net income, in simple terms, is the total income of a business after deducting all expenses from its turnover. Net income ratio or net profit margin is a ratio between net income and sales of a business. A high net profit ratio shows that the company is able to efficiently manage all its business activities, including production, administration, sales, etc.
Screening Parameters
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 ranking equal to n°1: Whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven track record 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.
Net income ratio for the last 12 months greater than X Sector: A high net income ratio indicates a company’s solid profitability.
Strong Buy Rating Percentage Above 70: This indicates that 70% of current broker recommendations for the stock are Strong Buy.
These few parameters reduced the universe from more than 7,843 stocks to just 12.
Here are four of the 12 actions that qualified the screening:
Fulgent Genetics, Inc. is a provider of COVID-19 testing and genetic testing services to physicians with clinically actionable diagnostic information.
Fulgent’s technology platform integrates data comparison and deletion algorithms, adaptive learning software, advanced genetic diagnostic tools and an integrated laboratory process, which it primarily serves hospitals and medical institutions. Its 12-month net profit margin is 55%.
Atlas Air Worldwide Holdings, Inc. is a provider of outsourced aircraft operations and aviation services.
AAWW is primarily involved in airport-to-airport air transportation of heavy cargo through its two operating subsidiary airlines, Atlas Air, Inc. and Polar Air Cargo, Inc. The 12-month net profit margin of Atlas Air is 13.2%.
Build-A-Bear Workshop, Inc. is a retailer of stuffed animals and related products. BBW offers an interactive stuffed animal entertainment and retail experience.
Build-A-Bear Workshop has a 12-month net profit margin of 8.5%.
Quidelcompany is a developer and manufacturer of point-of-care rapid diagnostic tests for the detection of medical conditions and diseases.
Quidel posted a net profit margin of 47.2% over 12 months.
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.
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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 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.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
As one investor put it, “curing and preventing hundreds of diseases…what should this market be worth?” This company could rival or surpass other recent Zacks stocks that are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in a year.
Free: See our best stock and our 4 finalists >>
Quidel Corporation (QDEL): Free Stock Analysis Report
BuildABear Workshop, Inc. (BBW): Free Stock Analysis Report
Atlas Air Worldwide Holdings (AAWW): Free Stock Analysis Report
Fullgent Genetics (FLGT): 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.
