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 Atlanticus Holdings Corporation ATLC, BrightSpring Health Services, Inc. BTSG, ASE Technology Holding Co., Ltd. ASX and Enova International, Inc. ENVA 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. 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 seven stocks that qualified the screen:
Atlanticus Holdings is a financial technology holding company that provides lending and technology services to help bank, retail and healthcare partners offer inclusive financial products, primarily serving non-prime American consumers. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Atlanticus Holdings’ 2026 earnings has moved upward by 11.8% to $9.48 per share over the past 30 days. ATLC outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 15.58%.
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 14 cents to $1.64 per share over the past 30 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 14.6%.
ASE Technology is a provider of semiconductor manufacturing services in assembly and testing. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for ASE Technology’s 2026 earnings has been revised upward by 39% to $1.05 per share over the past 30 days.
Enova International is a prominent financial technology company that provides online financial services to non-prime consumers and small businesses. The stock carries a Zacks Rank of 2 at present and has a VGM Score of A.
The Zacks Consensus Estimate for Enova International’s 2026 earnings has been revised upward by 65 cents to $16.43 per share in the past 30 days. ENVA surpassed the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 8.20%.
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ASE Technology Holding Co., Ltd. (ASX): Free Stock Analysis Report
Enova International, Inc. (ENVA): Free Stock Analysis Report
Atlanticus Holdings Corporation (ATLC): Free Stock Analysis Report
BrightSpring Health Services, Inc. (BTSG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).