Investors prefer to invest in businesses that reap profits on a regular basis. To gauge the extent of profits, there is no better metric than the net profit margin.
A higher net margin reflects a company’s efficiency in converting sales into actual profits. Flexsteel Industries, Inc. FLXS, Arko Corporation ARKO, Kiniksa Pharmaceuticals International, plc KNSA and Bassett Furniture Industries, Incorporated BSET 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, the 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, a 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 a business's value.
Moreover, a higher net profit margin compared with its peers provides the 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.
Let us discuss the four aforementioned stocks out of the nine stocks that qualified the screening.
Flexsteel Industries is a manufacturer, importer and marketer of residential furniture products, including upholstered seating, recliners, sofas and home furnishings sold through a network of furniture retailers and e-commerce channels. 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 Flexsteel Industries’ fiscal 2026 earnings has been raised by 13 cents to $4.78 per share over the past 60 days. FLXS beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 59%.
Arko is a Fortune 500 company and one of the largest operators of convenience stores and wholesalers of fuel in the United States. The stock sports a Zacks Rank #1 and has a VGM Score of A.
The Zacks Consensus Estimate for Arko’s 2026 earnings has been revised upward by 3 cents to 29 cents per share over the past 60 days. ARKO surpassed the Zacks Consensus Estimate thrice in the trailing four quarters and missed it once, the average surprise being 43.23%.
Kiniksa Pharmaceuticals is a biopharmaceutical company developing and commercializing novel therapies for diseases with unmet need, with a focus on cardiovascular indications. The stock currently sports a Zacks Rank of 1 and has a VGM Score of B.
The Zacks Consensus Estimate for Kiniksa Pharmaceuticals’ 2026 earnings has been revised northward by a penny to $1.25 per share over the past 30 days. KNSA topped the Zacks Consensus Estimate twice in the trailing four quarters while missing on two occasions, the average surprise being 1.53%.
Bassett Furniture is a leading manufacturer and marketer of high-quality, mid-priced home furnishings. The stock sports a Zacks Rank #1 and has a VGM Score of B.
The Zacks Consensus Estimate for Bassett Furniture’s fiscal 2026 earnings has been revised upward by 6 cents to 89 cents per share over the past seven days. BSET outpaced the Zacks Consensus Estimate on one occasion in the trailing four quarters, matched once and missed twice, the average surprise being -6.72%.
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Flexsteel Industries, Inc. (FLXS): Free Stock Analysis Report
Bassett Furniture Industries, Incorporated (BSET): Free Stock Analysis Report
Kiniksa Pharmaceuticals International, plc (KNSA): Free Stock Analysis Report
ARKO Corp. (ARKO): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).