CHICAGO, March 7, 2012 /PRNewswire/ -- Stocks in this week's article include: On Assignment, Inc. (NASDAQ: ASGN), DXP Enterprises, Inc. (NASDAQ: DXPE), Procera Networks, Inc. (NASDAQ: PKT), Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: ULTA) and Wabtec Corp. (NYSE: WAB). Kevin Matras looks at the powerful combination of Sales Growth and Increasing Profit Margins.Kevin Matras of Zacks Investment Research:
This week I want to focus on Sales Growth and Profit Margins. While everybody understands sales, margins might bring up a few question marks. And with earnings season essentially over, now is the perfect time to look at this.
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. And Sales Growth numbers show you how that 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 want 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 its net income is 15 cents for every $1 of sales it makes. But if a company's expenses are growing faster than sales, this will reduce its margins. In general, a company with increasing margins is becoming more profitable and is better managed, i.e., its costs are under control.
So continue to look at their sales numbers. And of course, look at their earnings too. But take a look at their profit margins as well. Are they going up or down? In other words, are they making more money on each dollar of sales they make, or less? This is important stuff to know, and can make a huge difference in your portfolio's bottom line.
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