Net profit, also referred to as the bottom line, is one of the key tools to determine the financial health of an enterprise. The metric demonstrates a company’s ability to convert per-dollar sales into profits.

A low profit margin indicates higher risks, implying that a revenue drop might dampen profits, pushing a company into the red. However, Huron Consulting Group Inc. HURN, Nomad Foods Limited NOMD, Willdan Group, Inc. WLDN and Limbach Holdings, Inc. LMB 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, 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 business value.

Moreover, a higher net profit margin compared with peers provides a 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.

Story Continues

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.

Here, we discuss our four picks from the 28 stocks that qualified the screen:

Huron Consulting is an independent provider of financial and operational consulting services. Huron's experienced and credentialed professionals employ their expertise in accounting, finance, economics and operations to a wide variety of both financially sound and distressed organizations, including Fortune 500 companies, medium-sized businesses, leading academic institutions, healthcare organizations and the law firms that represent these various organizations. The stock sports a Zacks Rank of 1 at present 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 Huron Consulting’s 2025 earnings has been revised upward by 3.5% to $7.15 per share in the past 60 days. HURN surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 21.5%.

Nomad Foods manufactures and distributes frozen foods primarily in the United Kingdom, Italy, Germany, Sweden, France and Norway. The stock sports a Zacks Rank of 1 at present and a VGM Score of A.

The Zacks Consensus Estimate for Nomad Foods’ 2025 earnings has been revised upward by 8 cents to $2.07 per share over the past seven days. NOMD surpassed the Zacks Consensus Estimate thrice in the trailing four quarters while missing the same on one occasion, the average surprise being 5%.

Willdan Group is a provider of professional, technical and consulting services to utilities, private industry and public agencies. Nationwide, the company enables its clients to realize cost and energy savings by providing a wide range of specialized services. The stock currently sports a Zacks Rank of 1 and has a VGM Score of B.

The Zacks Consensus Estimate for Willdan’s 2025 earnings has been revised upward to $2.75 per share from $2.35 in the past 60 days. WLDN surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 66.1%.

Limbach provides building systems. The company engineers, constructs and services mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. The stock sports a Zacks Rank of 1 at present and has a VGM Score of B.

The Zacks Consensus Estimate for Limbach’s 2025 earnings has been revised upward to $3.45 per share from $3.14 in the past 60 days. LMB surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 42.3%.

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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_disclosure/.

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Huron Consulting Group Inc. (HURN):Free Stock Analysis Report

Willdan Group, Inc. (WLDN):Free Stock Analysis Report

Nomad Foods Limited (NOMD):Free Stock Analysis Report

Limbach Holdings, Inc. (LMB):Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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