It’s wise to search for companies that offer solid returns even after meeting all operating and non-operating costs. In other words, investors should seek a profitable company over a loss-making one. Thus, we have used the concept of accounting ratios to evaluate a company’s profitability. There are several profitability ratios, from which we have chosen the most successful and frequently used profitability metric to determine the bottom-line performance of a company.

To that end, PDD Holdings Inc. PDD, Cavco Industries CVCO and InterDigital IDCC have been selected as the top picks with a high net income ratio.

Net Income Ratio

Net income ratio gives us the exact profitability level of a company. It reflects the percentage of net income to total sales revenues. Using net income ratio, one can determine a company’s effectiveness to meet operating and non-operating expenses from revenues. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all business functions.

Screening Parameters

Net income ratio is not the only indicator of future winners. So, we have added a few more criteria to arrive at a winning strategy.

Zacks Rank Equal to #1: Whether the market is good or bad, stocks with a Zacks Rank #1 (Strong Buy) have a proven history of outperformance. You can see the complete list of today’s Zacks #1 Rank stocks here.

Trailing 12-Month Sales and Net Income Growth Higher than X Industry: Stocks that have witnessed higher-than-industry sales and net income growth in the past 12 months are positioned to perform well.

Trailing 12-Month Net Income Ratio Higher than X Industry: High net income ratio indicates a company’s solid profitability.

Percentage Rating Strong Buy greater than 70: This indicates that 70% of the current broker recommendations for the stock are Strong Buy.

These few parameters have narrowed down the universe of more than 7,685 stocks to only 14.

Here are three of the 14 stocks that qualified for the screening:

PDD Holdings provides an e-commerce platform allowing users to participate in group buying deals. The 12-month net profit margin of PDD is 25.6%.

Cavco Industries designs and produces factory-built housing products primarily distributed through a network of independent and company-owned retailers. The 12-month net profit margin of CVCO is 11.2%.

InterDigital is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The 12-month net profit margin of IDCC is 32.4%.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.

InterDigital, Inc. (IDCC): Free Stock Analysis Report

Cavco Industries, Inc. (CVCO): Free Stock Analysis Report

PDD Holdings Inc. (PDD): Free Stock Analysis Report

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