The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. Net profit margin is an effective tool to measure the profits reaped by a business.
A higher net margin underlines a company’s efficiency in translating sales into actual profits. Moreover, this metric gives insight into how well a company is run and the headwinds weighing on it. Castle Biosciences, Inc. CSTL, OppFi, Inc. OPFI, GigaCloud Technology Inc. GCT and Qifu Technology, Inc. QFIN boast solid net profit margins.
Net Profit Margin = Net profit/Sales * 100
In simple terms, net profit is the amount a company retains after deducting all costs, interest, depreciation, taxes and other expenses. In fact, net profit margin can turn out to be a potent point of reference to gauge the strength of a company’s operations and its cost-control measures.
Also, higher net profit is essential for rewarding stakeholders. Further, strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance the value of a business.
Moreover, a higher net profit margin compared with its 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, net profit margin, as an investment criterion, has its share of pitfalls. The metric varies widely from industry to industry. While net income is a key metric for investment measurement in traditional industries, it is not that important for technology companies.
In addition, the difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
Furthermore, for companies preferring to grow with debt instead of equity funding, higher interest expenses usually weigh on net profit. In such cases, the measure is rendered ineffective while analyzing a company’s 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. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 have picked four stocks — Castle Biosciences, OppFi, GigaCloud and Qifu Technology — from the 17 stocks that qualified the screening.
Castle Biosciences is a commercial-stage provider of testing solutions for the diagnosis and treatment of dermatologic cancer. It is focused on providing physicians and patients with clinically actionable genomic information. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Castle Biosciences’ 2025 bottom line has been pegged at a loss of $1.84, narrower than the loss of $1.88 projected in the past 60 days. CSTL surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 172.7%.
OppFi provides a financial technology platform that powers banks to help everyday consumers gain access to credit. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for OppFi’s 2025 earnings has moved north by 14 cents in the past 60 days and currently stands at $1 per share. OPFI surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 67.7%.
GigaCloud is a pioneer of global end-to-end B2B e-commerce solutions for large parcel merchandise. The stock sports a Zacks Rank of 1 at present and has a VGM Score of A.
The Zacks Consensus Estimate for GigaCloud’s 2025 earnings has been revised upward by 2 cents to $3.38 per share over the past 60 days. GCT surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing on one occasion, the average surprise being 38.1%.
Qifu Technology is a credit-tech platform based principally in China that provides a comprehensive suite of technology services to assist financial institutions, consumers and small and medium enterprises in the loan lifecycle, ranging from borrower acquisition, preliminary credit assessment, fund matching and post-facilitation services. The stock sports a Zacks Rank of 1 at present and a VGM Score of B.
The Zacks Consensus Estimate for Qifu Technology’s 2025 earnings has been revised upward to $6.40 per share from $5.75 in the past 60 days. QFIN surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while matching on one occasion, the average surprise being 12.4%.
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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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Qifu Technology, Inc. (QFIN) : Free Stock Analysis Report
Castle Biosciences, Inc. (CSTL) : Free Stock Analysis Report
OppFi Inc. (OPFI) : Free Stock Analysis Report
GigaCloud Technology Inc. (GCT) : Free Stock Analysis Report
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