Increasing Sales and Profit Margins for Big Returns - Screen of the Week
29 Gennaio 2013 - 1:53AM
Zacks
With earnings season still in full swing, I wanted to talk this
week about Sales Growth and Profit Margins.
Earnings always seem to grab the bulk of the headlines. But
without sales there wouldn't be any earnings to speak of. And the
earnings everybody talks about are directly derived from the profit
margins on those sales.
While everybody understands sales, margins might bring up a few
question marks.
Sales
So let's start at the beginning: first and foremost, sales are
THE most important thing to a company. Everything else stems from
that. And Sales Growth numbers show you how that company is
growing.
However, increasing sales doesn't always mean that profits are
increasing too. Sales at the expense of profits does not work. So
paying attention to Profit Margins is the next thing we're going to
want to look at.
I don't want to pile onto Apple, but while their sales are up,
their net margins have contracted in each of the last three
quarters. And that has corresponded with the decline in price. Just
an example of how important margins are to the outlook of a
company.
Margins
Margin is simply a ratio. And the calculation is:
Net Income divided by Sales
So if a company's margin is 15%, for instance, that means its
net income is 15 cents for every $1 dollar of sales it makes.
But if a company's expenses are growing faster than their sales,
this will reduce their margins.
In general, a company with increasing margins is becoming more
profitable and is better managed, i.e., their costs are under
control.
So this earnings season, dig deeper into the numbers. Yes, look
at their sales. And of course, look at their earnings. But take a
look at their profit margins as well. Are they going up or down? In
other words, are they making more on each dollar of sales they
make, or less?
This is important stuff to know, and could make the difference
between investors buying a company's earnings announcement, or
selling it.
Parameters for this week's screen:
- 12 Month Trailing Sales Growth (Current / 1 Quarter
Ago) greater than their relevant Industry median. (Looking
for the top companies in their industries.)
- Current Net Margin greater than or equal to 5 Yr. Avg.
Net Margin. (Steady to increasing Net Profits is what
we're after.)
- Current Net Margin greater than or equal to Net Margin
from 1 Quarter Ago. (If a company's profit margin fell
last quarter, there's a chance it might fall yet again. So we're
excluding those companies whose margins fell in the previous
quarter.)
- Zacks Rank equal to 1 (Strong Buy)
(Only the top Zacks Ranked stocks can get thru.)
Here are 5 stocks that passed this screen this week:
AVD American Vanguard Corp.
BGS B&G Foods, Inc.
HTZ Hertz Global Holdings, Inc.
PNFP Pinnacle Financial Partners, Inc.
TYL Tyler Technologies, Inc.
Zacks Rank #1s (Strong Buys) with increasing sales and
increasing profit margins means more of their sales will fall to
the bottom line, thus boosting earnings even more.
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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:
http://www.zacks.com/performance.
AMER VANGUARD (AVD): Free Stock Analysis Report
B&G FOODS CL-A (BGS): Free Stock Analysis Report
HERTZ GLBL HLDG (HTZ): Free Stock Analysis Report
PINNACLE FIN PT (PNFP): Free Stock Analysis Report
TYLER TECH INC (TYL): Free Stock Analysis Report
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