Net profit, also referred to as the bottom line, is one of the key tools to determine the financial health of an enterprise. The metric demonstrates a company’s ability to convert per-dollar sales into profits.
A low profit margin indicates higher risks, implying that a revenue drop might dampen profits, pushing a company into the red. However, QuinStreet, Inc. QNST, Tutor Perini Corporation TPC, Huron Consulting Group Inc. HURN and EuroDry Ltd. EDRY 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.
Higher net profit is essential for rewarding stakeholders. Strength in the metric not only attracts investors but also draws well-skilled employees who eventually enhance business value.
A higher net profit margin compared with 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.
The difference in accounting treatment of various items — especially non-cash expenses like depreciation and stock-based compensation — makes comparison a daunting task.
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: A 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 15 stocks that qualified the screen:
QuinStreet is a digital performance marketing company that runs online marketplaces matching consumers with brand products and services. The company offers online messaging, email broadcasting, search engine marketing and brand management services. 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 QuinStreet’s fiscal 2027 earnings has moved upward by 11 cents to $1.60 per share over the past 60 days. QNST outpaced the Zacks Consensus Estimate twice in the trailing four quarters, matched once and missed the same on one occasion, with the average surprise being 9.2%.
Tutor Perini provides diversified general contracting, construction management and design-build services to private clients and public agencies worldwide. The stock currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Tutor Perini’s 2026 earnings has moved upward by 5.8% to $5.48 per share over the past 60 days. TPC outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 17.8%.
Huron Consulting provides financial and operational consulting services. The company's experienced and credentialed professionals employ their expertise in accounting, finance, economics and operations to a wide variety of both financially sound and distressed organizations. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Huron Consulting’s 2026 earnings has moved upward by 5.4% to $9.18 per share over the past 60 days. HURN outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 12.4%.
EuroDry is an owner and operator of drybulk vessels and provider of seaborne transportation for drybulk cargoes. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for EuroDry’s 2026 earnings has moved upward by 49.1% to $5.77 per share over the past 60 days. EDRY outpaced the Zacks Consensus Estimate for earnings twice in the trailing four quarters while missing the same on two occasions, the average surprise being -5.6%.
7 Best Stocks for the Next 30 Days
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Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention.
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Huron Consulting Group Inc. (HURN): Free Stock Analysis Report
QuinStreet, Inc. (QNST): Free Stock Analysis Report
Tutor Perini Corporation (TPC): Free Stock Analysis Report
EuroDry (EDRY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).