4 Stocks With Solid Net Profit Margins to Enhance Portfolio Returns

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. SkyWest, Inc. SKYW, Interface, Inc. TILE, FreightCar America, Inc. RAIL, and Standard Motor Products, Inc. SMP 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.

Pros and Cons

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.

The Winning Strategy

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.

Screening Parameters

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 eight stocks that qualified the screen:

SkyWest operates as a regional airline in the United States through its subsidiary SkyWest Airlines.  The stock sports a Zacks Rank #1 and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for SkyWest’s 2025 earnings has been revised upward by 3.8% to $10.33 per share over the past 30 days. SKYW surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 21.2%.

Interface is the world's largest manufacturer of modular carpets, which it markets under the Interface and FLOR brands. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A.

The Zacks Consensus Estimate for Interface’s 2025 earnings has been revised upward to $1.85 per share from $1.70 in the past 30 days. TILE outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30.3%.

FreightCar America manufactures railroad freight cars, with particular expertise in coal-carrying railcars. In addition to coal cars, FreightCar America designs and builds flat cars, mill gondola cars, intermodal cars, coil steel cars and motor vehicle carriers. Currently, the stock carries a Zacks Rank #2 and has a VGM Score of A.

The Zacks Consensus Estimate for FreightCar America’s 2025 earnings has remained unchanged over the past 60 days. RAIL beat the Zacks Consensus Estimate three times in the trailing four quarters while missing on one occasion, with an average surprise of approximately 104%.

Standard Motor Products is one of the leading manufacturers, distributors and marketers of premium automotive replacement parts for engine management and temperature control systems. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.

The Zacks Consensus Estimate for Standard Motor Products’ 2025 earnings has been revised upward by 4 cents to $3.80 per share in the past 30 days. SMP beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 40.9%.

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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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This article originally published on Zacks Investment Research (zacks.com).

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