Stock Screening Tools: Sales and Profitability

By Paul Mladjenovic

After choosing the industry, the most important aspect in a stock screening tool is the sales and profitability. The net profit is the single most important metric when analyzing a company.

Sales Revenue

For sales revenue, there may be absolute numbers or percentages. In some stock screeners, there may be ranges such as “under $1 million in sales” up to “over $1 billion in sales.” On a percentage basis, some stock screeners may have a minimum and a maximum.

An example of this would be if you wanted companies that increased their sales by at least 10 percent. You’d enter 10 in the minimum percentage and either leave the maximum blank or plug in a high number such as 999. Another twist is you may find a stock screener that shows sales revenue with an average percentage over three or five years so you can see more consistency over an extended period.

Profit Margin

Profit margin is basically what percent of sales is the company’s net profit. If a company has $1 million in sales and $200,000 in net profit, then the profit margin is 20 percent ($200,000 divided by $1,000,000).

For this metric, you’d enter a minimum of 20 percent and a maximum of 100 percent because that’s the highest possible (but improbable) profit margin you can reach.

Keep in mind that the data you can sift through isn’t just for the most recent year; some stock screeners give you a summary of three years or longer, such as what that company’s profit margin has been over a three-year period, so you can get a better view of the company’s consistent profitability. The only thing better than a solid profit in the current year is a solid profit year after year.