Profitability is one of the most important considerations in choosing among stocks, but how do you compare peers? With that idea in mind, we ran a screen.
We began by screening the consumer goods sector for stocks with current ratios above 3, indicating high liquidity. The current ratio is current assets/current liabilities; so ratios above 3 indicate the company has at least 3 times the liquid assets to cover its short-term liabilities.
Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with:
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio)
•Improving net profit margin (i.e. increasing Net Income/Sales ratio)
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 profitable.
For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.
Tool provided by Kapitall.
Do you think these companies have strong profit trends? Use this list as a starting point for your own analysis.
List sorted by current ratio.
1. Steinway Musical Instruments Inc. (LVB): Designs, manufactures, markets, and distributes musical instruments in the United States and internationally. Market cap at $289.09M, most recent closing price at $23.63. Current ratio at 5.18. MRQ (most recent quarter) net profit margin at 0.76% vs. 0.7% y/y. MRQ sales/assets at 0.189 vs. 0.151 y/y. MRQ assets/equity at 1.758 vs. 2.079 y/y.
2. Carter's, Inc. (CRI): Designs, sources, and markets branded children's wear. Market cap at $2.93B, most recent closing price at $48.83. Current ratio at 5.09. MRQ net profit margin at 4.41% vs. 3.21% y/y. MRQ sales/assets at 0.331 vs. 0.3 y/y. MRQ assets/equity at 1.643 vs. 1.791 y/y.
3. Orchids Paper Products Company (TIS): Manufactures private label tissue products for the consumer market in the United States. Market cap at $126.2M, most recent closing price at $16.39. Current ratio at 3.32. MRQ net profit margin at 8.86% vs. 5.13% y/y. MRQ sales/assets at 0.216 vs. 0.205 y/y. MRQ assets/equity at 1.563 vs. 1.623 y/y.
4. UniFirst Corp. (UNF): Provides workplace uniforms and protective work wear clothing in the United States, Canada, and Europe. Market cap at $1.24B, most recent closing price at $61.86. Current ratio at 3.18. MRQ net profit margin at 8.56% vs. 6.32% y/y. MRQ sales/assets at 0.266 vs. 0.248 y/y. MRQ assets/equity at 1.386 vs. 1.509 y/y.
5. Titan International Inc. (TWI): Manufactures wheels, tires, and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction, and consumer markets in the United States. Market cap at $886.62M, most recent closing price at $20.81. Current ratio at 3.09. MRQ net profit margin at 9.59% vs. 6.09% y/y. MRQ sales/assets at 0.42 vs. 0.38 y/y. MRQ assets/equity at 2.302 vs. 2.726 y/y.
6. Shuffle Master Inc. (SHFL): Develops, manufactures, and markets technology and entertainment-based products for the gaming industry worldwide. Market cap at $799.06M, most recent closing price at $14.12. Current ratio at 3.08. MRQ net profit margin at 14.73% vs. 13.28% y/y. MRQ sales/assets at 0.203 vs. 0.182 y/y. MRQ assets/equity at 1.248 vs. 1.507 y/y.
7. Ralph Lauren Corporation (RL): Engages in the design, marketing, and distribution of lifestyle products. Market cap at $13.01B, most recent closing price at $141.31. Current ratio at 3.06. MRQ net profit margin at 5.82% vs. 5.13% y/y. MRQ sales/assets at 0.3 vs. 0.286 y/y. MRQ assets/equity at 1.483 vs. 1.507 y/y.
*Accounting data sourced from Google Finance; 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.