Pick These 4 Stocks With Solid Net Profit Margin to Boost Return

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 net profit margin.

A higher net margin reflects a company’s efficiency in converting sales into actual profits. Griffon Corporation GFF, BGC Group, Inc. BGC, ChampionX Corporation CHX and ChromaDex Corporation CDXC 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, 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. 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 20 stocks that qualified the screening:

Griffon is a diversified holding company with exposure in several industries. The company engages in the manufacture and sale of a wide range of consumer and professional, and home and building products, including garage doors, shutters, materials for disposable diapers and disposable health care products.  The stock carries a Zacks Rank #2 and has a VGM Score of A.

The Zacks Consensus Estimate for Griffon’s fiscal 2025 earnings has been revised upward by 4 cents to $5.55 per share over the past 30 days. GFF surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 14.7%.

BGC Group is a brokerage and financial technology company. Through its various affiliates, the company specializes in the brokerage of a broad range of products, including fixed income, foreign exchange, equities, energy and commodities, shipping and futures.  The stock currently carries a Zacks Rank #2 and has a VGM Score of A.

The Zacks Consensus Estimate of $1.08 per share for BGC Group’s 2025 earnings has moved 2 cents north in the past seven days. BGC surpassed the Zacks Consensus Estimate once in the trailing four quarters while matching the same on three occasions, the average surprise being 3.3%.

ChampionX provides chemistry solutions and engineered equipment and technologies to companies that drill for and produce oil and gas. The stock carries a Zacks Rank of 2 at present and has a VGM Score of B.

The Zacks Consensus Estimate for ChampionX’s 2025 earnings has been revised upward to $1.92 per share from $1.90 in the past 60 days. CHX surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing on one occasion, the average surprise being 9.8%.

ChromaDex supplies phytochemical reference standards and reference materials, related contract services, and products for the dietary supplement, nutraceutical, food and beverage, functional food, pharmaceutical and cosmetic markets.  At present, the stock carries a Zacks Rank #2 and has a VGM Score of A.

The Zacks Consensus Estimate for ChromaDex’s 2025 earnings has remained unchanged over the past 60 days at 12 cents per share. CDXC surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 91.8%.

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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: https://www.zacks.com/performance/.

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