4 Stocks With Solid Net Profit Margins to Boost Portfolio Returns

Investors focus on businesses that consistently generate profits. The net profit margin is key to assessing profitability. A higher net margin indicates a company's efficiency in converting sales into actual profits, providing insights into its operational effectiveness and the challenges it faces. Companies like Great Lakes Dredge & Dock Corporation GLDD, Interface, Inc. TILE, Catalyst Pharmaceuticals, Inc. CPRX and Sterling Infrastructure, Inc. STRL exhibit strong net profit margins.

Net Profit Margin = Net Profit / Sales * 100

Net profit represents the amount a company retains after all costs, interest, depreciation, taxes and other expenses are deducted. The net profit margin can be a valuable indicator of a company's operational strength and cost management. Higher net profits are crucial for rewarding stakeholders and attracting skilled employees, ultimately enhancing business value. Additionally, a higher net profit margin compared to competitors provides a competitive edge.

Pros and Cons of Net Profit Margin

Net profit margin offers investors clarity on a company’s business model, including its pricing policy, cost structure and manufacturing efficiency. A strong net profit margin is preferred by all types of investors. However, this metric has its limitations. It varies significantly across industries, and while net income is crucial in traditional sectors, it is less relevant for technology companies. Differences in accounting treatments, particularly for non-cash expenses like depreciation and stock-based compensation, can complicate comparisons.

Moreover, companies that grow through debt rather than equity funding incur higher interest expenses, which can negatively impact net profit. In such cases, the net profit margin becomes less effective for evaluating performance. Despite these challenges, net profit margin remains a fundamental measure for understanding a company's profitability and operational efficiency.

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. 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 discuss our four picks from the 30 stocks that qualified the screen:

Great Lakes Dredge & Dock is the largest provider of dredging services in the United States, conducting business to maintain and deepen shipping channels, reclaim land from the ocean and renourish storm-damaged coastline.  The stock sports a Zacks Rank #1 and has a VGM Score of A.

The Zacks Consensus Estimate for Great Lakes Dredge & Dock’s 2025 earnings has been revised upward by 27 cents to 96 cents per share over the past 60 days. GLDD surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing on one occasion, the average surprise being 93.3%.

Interface is the world's largest manufacturer of modular carpets, which it markets under the Interface and FLOR brands. The stock currently carries a Zacks Rank of 2 and has a VGM Score of A.

The Zacks Consensus Estimate for Interface’s 2025 earnings has been revised upward to $1.58 per share from $1.54 in the past 60 days. TILE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 37.3%.

Catalyst Pharmaceuticals is a commercial-stage biopharmaceutical company focused on the development and commercialization of therapies targeting rare and difficult-to-treat diseases. The stock carries a Zacks Rank #2 and has a VGM Score of A.

The Zacks Consensus Estimate for Catalyst Pharmaceuticals’ 2025 earnings has moved 2 cents north in the past 30 days and currently stands at $2.25 per share. CPRX surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 28.2%.

Sterling Infrastructure operates through subsidiaries within segments specializing in E-Infrastructure, Building and Transportation Solutions, principally in the United States. The stock carries a Zacks Rank of 2 at present and has a VGM Score of B.

The Zacks Consensus Estimate for Sterling Infrastructure’s 2025 earnings has been revised upward by 11 cents to $8.56 per share in the past seven days. STRL surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 11.5%.

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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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