A company that earns a high profit margin and is trading at a discount can become a big winner. With this in mind, we screened for companies that combined a price-to-book value below 1.5 with an ROA above 35% and a gross profit margin above 25%. These metrics are explained below:
Price-to-book value: Compares a stock's market value to its book value
Return on Assets: Tells how efficient a company is at generating earnings from invested capital (Net Income / Total Assets)
Gross Profit Margin: Gross Profit is what is left over for other expenses after Cost of Goods Sold are covered (Revenue – COGS/Revenue)
Another metric to look at is the quality ratio, which is the gross profit margin / assets. Stocks that have had a quality ratio below .33 and a price-to-book value below 1.7 have outperformed the overall market by 4% annually between 1963-2011. Below are the results from our screen, along with a description of each stock’s performance relative to their 13 day exponential moving average:
[List Average 1-Year Return: 15%]
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1. AOL, Inc. (AOL, Earnings, Analysts, Financials): Operates as a Web services company that offers a suite of brands and offerings for the worldwide audience. Market cap at $2.84B, most recent closing price at $36.84.AOL crossed over its moving average at the start of February. P/B = 1.32 ROA = 37.72% GM = 25.27% Quality = .216
2. American States Water Company (AWR, Earnings, Analysts, Financials): Provides water, electric, and contracted services in the United States. Market cap at $1.06B, most recent closing price at $55.03.Aware has been trading well below its moving average over the past three months. P/B = 1.35 ROA = 100.11% GM = 91.53% Quality = .212
3. Full House Resorts Inc. (FLL, Earnings, Analysts, Financials): Develops, manages, invests in, and owns gaming-related enterprises. Market cap at $60.15M, most recent closing price at $3.22.Full House Resorts recently crossed below its moving average at the start of March. P/B = 0.74 ROA = 35.10% GM = 42.98% Quality = .368
4. Tronox Incorporated (TROX, Earnings, Analysts, Financials): Produces and markets titanium products in the Americas, Europe, and the Asia-Pacific. Market cap at $2.44B, most recent closing price at $21.49. Tronox has traded above its moving average since the middle of February. P/B = 0.86 ROA = 35.59% GM = 25.50% Quality = .216
5. Verenium Corporation (VRNM, Earnings, Analysts, Financials): An industrial biotechnology company. Market cap at $31.06M, most recent closing price at $2.43. Verenium is close to crossing over its moving average after pushing up against it at the start of March. P/B = 0.95 ROA = 35.16% GM = 43.89% Quality = .410
(Written by Nick Sousa)
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Dig Deeper: Access Company Snapshots, Charts, FilingsAOL, Inc. (AOL, Chart, Download SEC Filings) American States Water Company (AWR, Chart, Download SEC Filings) Full House Resorts Inc. (FLL, Chart, Download SEC Filings) Tronox Incorporated (TROX, Chart, Download SEC Filings) Verenium Corporation (VRNM, Chart, Download SEC Filings)
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