A profitable company tends to offer strong returns as well as meet all its operating and non-operating expenses. However, a profitable company with weak fundamentals may face some problems. Several studies show that a company with a high level of profitability is a strong investment option.

Here, we have used ratio analysis to evaluate the profitability of a company. There are four vital profitability ratios, which include gross income ratio, operating income ratio, pre-tax profit margin and net income ratio. From these, we have selected net income ratio, which is the most widely used and transparent profitability 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 revenue. Using net income ratio, one can determine a company’s ability to meet operating and non-operating expenses. A higher net income ratio usually implies a company’s ability to generate ample revenues and successfully manage all its business functions.

Screening Parameters

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

Zacks Rank equal to #1: Only Zacks Rank #1 (Strong Buy) stocks are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off. You can see the complete list of today’s Zacks #1 Rank stocks here.

12-Month Trailing Sales and Net Income Growth Higher than X Industry: Stocks that possess higher sales and net income growth in the last 12 months showcase better financial performance.

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

% Rating Strong Buy greater than 70%: This indicates that 70% of the analysts covering these stocks are optimistic.

These few parameters narrowed down the universe of over 7,875 stocks to only nine.

Here are four of the nine stocks that qualified the screen:

UR-Energy Inc. (URG - Free Report) involves in exploration, operation, acquisition and development of uranium mineral properties.It has an average four-quarterpositive earnings surprise of 100%.

EPAM Systems, Inc. (EPAM - Free Report) offers software engineering solutions and product development globally.It has an average four-quarterpositive earnings surprise of 3.2%.

Nova Measuring Instruments Ltd. (NVMI - Free Report) develops and markets monitoring and measurement systems for the semiconductor manufacturing industry.It has an average four-quarterpositive earnings surprise of 30.8%.

KMG Chemicals, Inc. (KMG - Free Report) manufactures and distributes specialty chemicals globally.It has an average four-quarter positive earnings surprise of 10.6%.