It’s a good idea to look for companies that offer strong returns even after all operating and non-operating costs are covered. In other words, investors should look for a profitable company rather than a loss-making company. Thus, we used the concept of accounting ratios to assess the profitability of a company. There are several profitability ratios, among which we have chosen the best performing and most frequently used profitability measure to determine the overall performance of a company.
To this end, Brigham Minerals MNRL, Hudson Technologies HDSN and Civitas Resources CIVI 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 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 7,685 stocks to only 21.
Here are three of the 21 actions that qualified the screening:
Brigham Minerals is a mineral acquisition company. It is focused on acquiring oil and gas mineral rights in unconventional shale deposits across the United States. MNRL’s 12-month net profit margin is 41.2%.
Hudson Technologies is a leading provider of innovative solutions to recurring problems in the refrigeration industry. HDSN’s 12-month net profit margin is 31.9%.
Civitas Resources is a carbon-neutral oil and gas producer focused on the development and production of crude oil, natural gas and natural gas liquids primarily in the Denver-Julesburg Basin of Colorado. CIVI’s 12-month net profit margin is 28.7%.
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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 advisory firm 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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