Net Profit Margin, NPM, which I introduced last week, shows the after tax profit that a company makes, in percent, for each dollar of sales it receives. It directly relates bottom line and top line performance in one simple figure and, therefore, is a wonderful measure of profitability.
Take La-Z-Boy, Inc., LZB, yesterday’s top stock ranked by VST, for example. If I use the “Layout” function, located in the Local Tool Bar of the Stock Viewer screen, to add NPM, I see that LZB has an NPM of 2.82%. That’s not so hot, but I do see that LZB does have a forecasted earnings growth rate (GRT) of 34% per year, and that’s great. I can also see that Sales GRT is 6 %/yr., which isn’t too bad, given the state of the current economy. What about that NPM of only 2.82%?
At the bottom of the Stock Viewer screen, I can see that LZB is in the Home(Furniture) Industry Group. This summary data shows that the average NPM for the Home(Furniture) Industry Group is only 1.18%. So LZB is doing relatively well in comparison to its competitors. The average earnings GRT for this industry is only 5 %/yr., and Sales GRT is -14 %/yr. Wow, LZB beats the industry average in every respect. Best of all, LZB is growing both the top line and the bottom line.
If I double click on the summary row at the bottom of the Stock Viewer screen, the Industry Viewer screen appears and I can see that LZB is at the top of the list since the stocks are ranked by VST Desc. When I click on the column header, indentified by (EPS/SPS)*100, I see that Tempur Pedic, TPX, comes to the top with an NPM of 13.56%, which is quite good. In fact, it’s outstanding for a retailer. In any event, LZB ranks in the upper half of the 21 stocks in this group. It is also reassuring to see that LZB is ranked in the upper half of all the stocks by RV, RS, RT, GRT, EY, and GPE. So it clearly is one of the best stocks in this Industry Group.
When I look at a Standard Graph of LZB, I see that its Price has gone from $0.86 per share last March 11th to $14.93 last night. Wow, can it go higher? I hope so, I own it. Nevertheless, by un-checking RT and checking EPS, I can see that EPS has gone up nicely, from -$2.07 per share to $0.63 per share over the last 12 months. I can graph NPM by clicking on “Edit Field List,” located in the lower right hand corner of the screen, scrolling down to NPM, located in the left hand box, clicking on it; then clicking on Add >, and OK. Now, I simply check NPM, and I can see that NPM goes up, right in concert with EPS.
Well, let’s see. When I add Sales GRT to the graph, I can see that it, too, has gone up very nicely since last year. That’s what I really like to see, rising Sales GRT, rising EPS and rising NPM. No wonder LZB has done so well over the past year. Want to have some fun? Take a look at a graph of Apple Inc., AAPL. Its EPS has been rising rapidly, its Sales GRT is a fabulous 32 %/yr., and its NPM is a nifty 23.22%.
I’m not done writing about NPM yet because there&Rsquo;s a lot more we can learn from it. Until next week, then, I suggest that you analyze your stocks through the prism of NPM. You’ll see A Whole New Dimension.