Zacks
0
All posts from Zacks
Zacks in Our Research. Your Success.,

Bet on These 5 Profitable Stocks for Higher Returns

Profitability analysis is one of the most popular tools to gauge futureascensions of stocks. In simple terms, a company is profitable when it has surplus sales revenue after meeting all its expenses. Of course, investors prefer a profitable company over a loss making one. But there is no guarantee that the stock of a profitable company will always generate positive returns. A profitable company could have fundamental weakness that might get reflected in the performance of its stock.   

However, several studies have shown that investing in shares of companies with high profitability generally results attractive returns.

The ideal way of understanding a company’s profitability position is to check its accounting ratios. Here, we’ve chosen one of the most effective and widely used profitability metrics, net income ratio.

Net Income Ratio

There are basically four important profit ratios, which are gross income ratio, operating income ratio, pretax profit margin and net income ratio. However, we have selected net income ratio as it generally depicts the true profitability picture of a company.

Net income ratio helps in comparing net income with total sales revenue. It shows how much the company makes for each sales dollar after paying all its expenses. Moreover, a high net profit ratio generally indicates that the company is able to make ample funds even after paying all its operating and non-operating expenses.

Screening Parameters

Net income ratio is not the only indicator of future winners. As such, we have added a few additional criteria to arrive at a winning strategy.  

Zacks Rank equal to #1: Only Strong Buy stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.

12-Month Trailing Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.

12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.

% Rating Strong Buy greater than 70%:This indicates that 70% of the analysts covering these stocks are optimistic.

Here are 5 of the 11 stocks that qualified the screening:

IMAX Corporation (IMAX)

Marinemax Inc. (HZO)

Retrophin, Inc. (RTRX)

IRadimed Corporation (IRMD)

LKQ Corp. (LKQ)

While backtesting over a two-year timeframe (Apr 25, 2014 to Apr 29, 2016), a portfolio following this strategy provided a total return of 30.1% compared with the S&P 500’s return of 8.8%. Thus, this strategy may prove profitable for those looking to beat the markets.

Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back-testing software.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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: http://www.zacks.com/performance.

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
IRADIMED CORP (IRMD): Free Stock Analysis Report
 
RETROPHIN INC (RTRX): Free Stock Analysis Report
 
IMAX CORP (IMAX): Free Stock Analysis Report
 
MARINEMAX INC (HZO): Free Stock Analysis Report
 
LKQ CORP (LKQ): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research