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Net profit margin is the measure of how much profit a company takes away from its revenues. When this margin increases over time, it indicates that the company is gaining better control over its cost structure and is becoming more profitable.

We used net profit margin to screen for stocks seeing improvements in their profitability, comparing the trailing-12-month net margin to the company’s five-year average. We also screened for companies trading at significant discounts to their target price, possibly indicating an undervalued opportunity. Finally, we searched for those stocks that have also seen significant net buying from institutional investors over the current quarter.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.


We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

List sorted by net institutional purchases as a percent of share float.

1. Financial Engines, Inc. (NASDAQ:FNGN): Diversified Investments Industry. Market cap of $1.05B. TTM net profit margin at 53.92% vs. 5-year average at 14.72%. Target price at $31.00 vs. current price at $23.70 (implies a potential upside of 30.80%). Net institutional purchases over the current quarter at 5.1M shares, which is 14.90% of the company's 34.22M share float. The stock is a short squeeze candidate, with a short float at 9% (equivalent to 10.65 days of average volume). It's been a rough couple of days for the stock, losing 8.03% over the last week.

2. E*TRADE Financial Corporation (NASDAQ:ETFC): Investment Brokerage - National Industry. Market cap of $2.85B. TTM net profit margin at 2.67% vs. 5-year average at -20.30%. Target price at $16.33 vs. current price at $12.91 (implies a potential upside of 26.49%). Net institutional purchases over the current quarter at 26.3M shares, which is 12.86% of the company's 204.57M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.08). It's been a rough couple of days for the stock, losing 6.45% over the last week.

3. Stone Energy Corp. (NYSE:SGY): Independent Oil & Gas Industry. Market cap of $1.53B. TTM net profit margin at 16.13% vs. 5-year average at -37.14%. Target price at $40.50 vs. current price at $31.24 (implies a potential upside of 29.64%). Net institutional purchases over the current quarter at 5.1M shares, which is 11.48% of the company's 44.41M share float. This is a risky stock that is significantly more volatile than the overall market (beta = 2.53). The stock has gained 184.52% over the last year.

4. Atlas Pipeline Partners LP (NYSE:APL): Oil & Gas Pipelines Industry. Market cap of $1.76B. TTM net profit margin at 21.62% vs. 5-year average at -18.27%. Target price at $41.00 vs. current price at $32.95 (implies a potential upside of 24.43%). Net institutional purchases over the current quarter at 4.2M shares, which is 10.31% of the company's 40.73M share float. The stock has gained 223.99% over the last year.

5. Nanometrics Incorporated (NASDAQ:NANO): Scientific & Technical Instruments Industry. Market cap of $432.32M. TTM net profit margin at 28.41% vs. 5-year average at -11.36%. Target price at $23.00 vs. current price at $19.02 (implies a potential upside of 20.93%). Net institutional purchases over the current quarter at 1.7M shares, which is 9.94% of the company's 17.10M share float. It's been a rough couple of days for the stock, losing 6.81% over the last week. The stock has had a good month, gaining 13.21%.

6. TiVo Inc. (NASDAQ:TIVO): CATV Systems Industry. Market cap of $1.22B. TTM net profit margin at 33.69% vs. 5-year average at -6.78%. Target price at $13.86 vs. current price at $10.12 (implies a potential upside of 36.96%). Net institutional purchases over the current quarter at 10.2M shares, which is 8.68% of the company's 117.55M share float. It's been a rough couple of days for the stock, losing 6.12% over the last week.

7. AVEO Pharmaceuticals, Inc. (NASDAQ:AVEO): Biotechnology Industry. Market cap of $711.27M. TTM net profit margin at 24.46% vs. 5-year average at -178.33%. Target price at $26.75 vs. current price at $20.03 (implies a potential upside of 33.55%). Net institutional purchases over the current quarter at 2.2M shares, which is 8.19% of the company's 26.87M share float. The stock has had a good month, gaining 14.2%.

Net margin and price data sourced from Screener.co, institutional data sourced from Fidelity, all other data sourced from Finviz.

Source: 7 Undervalued Stocks With Rising Profitability Being Bought by Smart Money