For stocks on this list, their margins are worse than the industry average, suggesting they are less efficient at generating profits. But we took a deeper look and were able to find 4 companies that have shown strong improvements in the sources of their profitability year over year, as per DuPont Analysis. Could this be a sign of a turnaround?
Here are the details:
We looked for stocks with weak profitability compared to industry peers, with lower gross, operating, and pretax margins than their industry averages by at least 5% on each margin. This indicates that these companies are taking a smaller percentage of their revenues as profits, and they also have less control over their cost structures.
But lower margins don't tell the whole story. We further analyzed our list of companies for strong profitability by performing DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components. If the ROE is unsatisfactory, the DuPont analysis helps target the part of the business that is underperforming. Learn more about the equation here.
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are becoming competitively profitable in their industry.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research. Do you think these stocks' profit will continue to grow? Use this list as a starting point for your own analysis.
1. EastGroup Properties Inc. (NYSE:EGP): Focuses on the development, acquisition, and operation of industrial properties in the United States.
- Market cap at $1.81B, most recent closing price at $60.35.
- TTM gross margin at 32.93% vs. industry average at 40.89%. TTM operating margin at 32.93% vs. industry average at 38.19%. TTM pretax margin at 13.86% vs. industry average at 20.55%.
- MRQ net profit margin at 26.11% vs. 14.67% y/y. MRQ sales/assets at 0.035 vs. 0.034 y/y. MRQ assets/equity at 2.784 vs. 3.194 y/y.
- Investors may be interested to know this stock has attracted hedge fund managers: Net institutional purchases in the current quarter at 1.7M shares, which represents about 5.95% of the company's float of 28.55M shares.
2. Fidelity National Information Services, Inc. (NYSE:FIS): Provides banking and payments technology solutions worldwide.
- Market cap at $11.79B, most recent closing price at $40.04.
- TTM gross margin at 42.94% vs. industry average at 50.01%. TTM operating margin at 18.58% vs. industry average at 29.56%. TTM pretax margin at 14.31% vs. industry average at 23.05%.
- MRQ net profit margin at 9.11% vs. 8.01% y/y. MRQ sales/assets at 0.111 vs. 0.105 y/y. MRQ assets/equity at 2.04 vs. 2.133 y/y.
- When comparing valuation ratios to industry averages, Fidelity National Information Services, Inc. looks expensive. The stock's Price / Free Cash Flow ratio stands at 22.86. That said, the company has had a stellar performance this year and is trading at its 52-week high.
3. Mid-America Apartment Communities Inc. (NYSE:MAA): A real estate investment trust (REIT), engages in acquiring, owning, and operating apartment communities primarily in the Sunbelt region of the United States.
- Market cap at $3.B, most recent closing price at $70.59.
- TTM gross margin at 26.37% vs. industry average at 40.89%. TTM operating margin at 26.37% vs. industry average at 38.19%. TTM pretax margin at 13.58% vs. industry average at 20.55%.
- MRQ net profit margin at 16.98% vs. 16.6% y/y. MRQ sales/assets at 0.048 vs. 0.045 y/y. MRQ assets/equity at 2.994 vs. 3.503 y/y.
- MAA has returned 3.26% since 3/11/13, and is one of the worst performing stocks in its industry. The stock is falling behind companies like Avalonbay Communities Inc. (NYSE:AVB) and Equity Residential (NYSE:EQR), which returned 8.55% and 7.22% during the same time period.
- The stock presently has an average rating of "Buy" and a average price target of $70.10.
4. Valassis Communications Inc. (NYSE:VCI): Operates as a media and marketing services company primarily in the United States.
- Market cap at $1.09B, most recent closing price at $27.94.
- TTM gross margin at 27.74% vs. industry average at 41.64%. TTM operating margin at 10.66% vs. industry average at 19.53%. TTM pretax margin at 8.55% vs. industry average at 15.91%.
- MRQ net profit margin at 5.89% vs. 5.76% y/y. MRQ sales/assets at 0.365 vs. 0.362 y/y. MRQ assets/equity at 3.356 vs. 3.658 y/y.
- A warning to investors, short sellers think there's more downside to the stock, especially when comparing short float to industry averages. VCI short float stands at 25.33%, which is equivalent to 24.03 days of average trading volume. As an example, this is much higher than National CineMedia, Inc. (short float at 1.68%, representing 5.38 days of trading volume) and Clear Channel Outdoor Holdings Inc. (short float at 3.92%, representing 7.82 days of trading volume).
*Accounting data sourced from Google Finance, institutional data from Fidelity, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Business relationship disclosure: Kapitall is a team of analysts. This article was written by Rebecca Lipman, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.