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, Remitly Global, Inc. RELY, Mistras Group, Inc. MG, BrightSpring Health Services, Inc. BTSG and Constellium SE CSTM 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 business value.
Moreover, 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.
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: 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 10 stocks that qualified the screen:
Remitly Global is a mobile-first provider of remittances and financial services for immigrants. The stock currently sports a Zacks Rank of 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 Remitly Global’s 2026 earnings has been revised upward by 50% over the past 60 days to 51 cents per share. RELY beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 391.7%.
Mistras Group is a global provider of technology-enabled, non-destructive testing solutions used to evaluate the structural integrity of critical energy, industrial and public infrastructure. The stock currently sports a Zacks Rank of 1 and has a VGM Score of A.
The Zacks Consensus Estimate for Mistras Group’s 2026 earnings has been revised upward to $1.05 per share from $1.01 in the past 30 days. MG outperformed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 1.9%.
BrightSpring Health Services provides complementary home and community-based pharmacy and health solutions. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for BrightSpring Health Services’ 2026 earnings has moved upward by 15% to $1.61 per share over the past 60 days. BTSG outpaced the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, with the average surprise being 40.4%.
Constellium develops innovative, value-added aluminum products for aerospace, automotive and packaging markets and applications. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Constellium’s 2026 earnings has been revised upward by 20.6% to $2.05 per share over the past 60 days. CSTM outpaced the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, with the average surprise being 112.6%.
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Mistras Group Inc (MG): Free Stock Analysis Report
Constellium SE (CSTM): Free Stock Analysis Report
Remitly Global, Inc. (RELY): Free Stock Analysis Report
BrightSpring Health Services, Inc. (BTSG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).