Buy These 4 Stocks With Solid Net Profit Margins to Enhance Returns

The primary purpose of a business is to generate profits that can be reinvested in expansion or utilized for rewarding shareholders. The 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 offers insight into how well a company is run and the headwinds weighing on it. Natural Gas Services Group, Inc. NGS, Ardmore Shipping Corporation ASC, Adtalem Global Education Inc. ATGE and RGC Resources, Inc. RGCO 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.

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, 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.

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.

Let us discuss the abovementioned four stocks out of the 21 stocks that qualified the screening.

Natural Gas Services manufactures, fabricates, sells, rents and services natural gas compressors that enhance the production of natural gas wells. The stock sports a Zacks Rank of 1 at present 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 Natural Gas Services’ 2025 earnings has been revised upward by 18.6% to $1.40 per share in the past 60 days. NGS surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 34.8%.

Ardmore Shipping engages in the ownership and operation of product and chemical tankers. It provides shipping services to customers through voyage charters, commercial pools and time charters. The stock currently sports a Zacks Rank #1 and has a VGM Score of B.

The Zacks Consensus Estimate of $1.36 per share for Ardmore Shipping’s 2025 earnings has moved 19 cents north in the past seven days. ASC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 5.2%.

Adtalem Global Education is a leading healthcare education provider and workforce solutions innovator. The stock carries a Zacks Rank of 2 at present and a VGM Score of A.

The Zacks Consensus Estimate for Adtalem Global Education’s fiscal 2025 earnings has been revised upward by 4.8% to $6.52 per share in the past 60 days. ATGE surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 18.4%.

RGC Resources has thousands of customers through its natural gas distribution companies, which serve the Roanoke Valley and Bluefield, Virginia and West Virginia areas. The stock carries a Zacks Rank of 2 at present and has a VGM Score of B.

The Zacks Consensus Estimate for RGC Resources’ fiscal 2025 earnings has been revised upward by 2 cents to $1.25 per share in the past 60 days. RGC surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 34.9%.

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: https://www.zacks.com/performance/.

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

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

Zacks Investment Research