Kevin Matras looks at Sales Growth and Increasing Profit Margins, which is a powerful combination for big returns. Stocks in this week’s article are Fuel Systems Solutions, Inc. (NASDAQ: FSYS), Gerdau S.A. (NYSE: GGB), G-III Apparel Group, Ltd. (NASDAQ: GIII), Life Partners Holdings, Inc. (NASDAQ: LPHI) and Steinway Musical Instruments, Inc. (NYSE: LVB). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109
Screen of the Week written by Kevin Matras of Zacks Investment Research:
This week I want to focus on Sales Growth and Profit Margins. Everybody understands sales, but margins might bring up a few question marks.
So let's start at the beginning: First and foremost, sales are THE most important thing to a company. Everything else stems from that. Without sales, there really wouldn't be anything else to analyze. Sales Growth numbers show you how the company is growing.
However, just because sales are increasing, 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 look at.
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 the company's net income is 15 cents for every $1 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.
Parameters for this week's screen:
- 12 Month Trailing Sales Growth (Current / 1 Quarter Ago) greater than or equal to their relevant Industry average. (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. (The Zacks Rank is one of the best, if not the best rating system out there. One of the main components to the Zacks Rank is Earnings Estimate Revisions. The whole idea being, companies that receive upward estimate revisions have a tendency of receiving even more upward estimate revisions. And this helps paint a solid picture moving forward.)
Here are 5 stocks that pass this screen this week:
FSYS Fuel Systems Solutions, Inc.
GGB Gerdau S.A.
GIII G-III Apparel Group, Ltd.
LPHI Life Partners Holdings, Inc.
LVB Steinway Musical Instruments, Inc.
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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.
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