Investors seek companies that consistently generate profits. One of the best metrics to measure profitability is the net profit margin. This metric highlights a company's ability to convert sales into actual profits, providing insights into operational efficiency and management quality. Sterling Infrastructure, Inc. STRL, Kingstone Companies, Inc. KINS, Meritage Hospitality Group Inc. MHGU and CBIZ, Inc. CBZ boast solid net profit margins.
Net Profit Margin = Net profit/Sales * 100.
Net profit represents the amount retained after all expenses, including costs, interest, depreciation and taxes. A strong net profit margin indicates effective cost control and operational strength, which are crucial for rewarding stakeholders and attracting investors and talented employees. Moreover, a higher net profit margin compared to peers provides a company with a competitive edge.
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, this metric varies across industries, making direct comparisons challenging. While it is vital for traditional industries, it might be less relevant for technology companies.
Differences in accounting practices, especially with regard to non-cash expenses like depreciation and stock-based compensation, further complicate comparisons. Additionally, companies that rely heavily on debt may show lower net profits due to high interest expenses, limiting the metric's effectiveness in evaluating performance.
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.
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 environments.
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 four picks from the 13 stocks that qualified the screen:
Sterling Infrastructure operates through subsidiaries within segments specializing in E-Infrastructure, Building and Transportation Solutions, principally in the United States. The stock sports a Zacks Rank of 1 at present and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Sterling Infrastructure’s 2025 earnings has been revised upward by 14% to $7.35 per share in the past 30 days. STRL surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 16.2%.
Kingstone Companies is engaged in offering property and casualty insurance to individuals in the United States. The stock sports a Zacks Rank of 1 at present and a VGM Score of A.
The Zacks Consensus Estimate for Kingstone Companies’ 2025 earnings has been revised upward to $1.80 from $1.55 per share 30 days ago. KINS matched the Zacks Consensus Estimate in the preceding two quarters.
Meritage Hospitality specializes in the development and operation of restaurants and leisure properties. It owns and operates casual dining restaurants in Michigan, through brands consisting of Twisted Rooster locations, Crooked Goose location and Freighters Eatery & Taproom location. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Meritage Hospitality’s 2025 bottom line has been revised upward to earnings of $1.36 from $1.12 per share projected in the past 60 days. MHGU surpassed the Zacks Consensus Estimate once in the trailing four quarters while missing the same on three occasions, the average surprise being -53.01%.
CBIZ specializes in offering insurance, financial and advisory services in the United States and Canada. The stock sports a Zacks Rank of 1 at present and has a VGM Score of B.
The Zacks Consensus Estimate for CBIZ’s 2025 earnings has been revised upward by 23% to $3.63 per share in the past seven days. CBZ surpassed the Zacks Consensus Estimate twice in the trailing four quarters while missing the same on two occasions, the average surprise being 0.3%.
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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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CBIZ, Inc. (CBZ) : Free Stock Analysis Report
Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report
Kingstone Companies, Inc (KINS) : Free Stock Analysis Report
Meritage Hospitality Group Inc. (MHGU) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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