Efficiency level measures a company’s capability to transform available input into output and is often considered an important parameter for gauging its potential to make profits. A company with a high efficiency level is expected to provide stellar returns as it is believed to be positively correlated with price performance.

However, at times, it becomes difficult to measure the efficiency level of a company. This is why one must consider popular efficiency ratios while selecting stocks.

To that end, Microvast MVST, Companhia de saneamento Basico Do Estado De Sao Paulo Sabesp SBS, CarGurus CARG and AptarGroup ATRmade it through the screening process.

These efficiency ratios are:

Receivables Turnover: This is the ratio of 12-month sales to four-quarter average receivables. It shows a company’s potential to extend its credit and collect debt in terms of that credit. A high receivables turnover ratio or the “accounts receivable turnover ratio” or “debtor’s turnover ratio” is desirable as it shows that the company is capable of collecting its accounts receivables or that it has quality customers.

Asset Utilization: This ratio indicates a company’s capability to convert assets into output and is thus a widely known measure of efficiency level. It is calculated by dividing total sales over the past 12 months by the last four-quarter average of total assets. Like the above ratios, high asset utilization may indicate that a company is efficient.

Inventory Turnover: The ratio of the 12-month cost of goods sold (COGS) to a four-quarter average inventory is considered one of the most popular efficiency ratios. It indicates a company’s ability to maintain a suitable inventory position. While a high value indicates that the company has a relatively low inventory level compared to COGS, a low value indicates that the company is facing declining sales, which has resulted in excess inventory.

Operating Margin: This efficiency measure is the ratio of operating income over the past 12 months to sales over the same period. It measures a company’s ability to control operating expenses. Hence, a high value of the ratio may indicate that the company manages its operating expenses more efficiently than its peers.

Screening Criteria

In addition to the above-mentioned ratios, we have added a favorable Zacks Rank — Zacks Rank #1 (Strong Buy) — to the screen to make this strategy more profitable. You can see the complete list of today’s Zacks #1 Rank stocks here.

Story Continues

Inventory Turnover, Receivables Turnover, Asset Utilization, and Operating Margin greater than the industry average

(Values of these ratios higher than industry averages may indicate that the efficiency level of the company is higher than its peers.)

The use of these few criteria has narrowed down the universe of over 7,906 stocks to eight.

Our Choices

Here are the top four stocks that made it through the screen:

Microvast is a technology company, which designs, develops and manufactures lithium-ion battery solutions. MVST has an average four-quarter earnings surprise of 88.8%.

Companhia de saneamento Basico Do Estado De Sao Paulo Sabesp provides public water and sewage services to residential, commercial, industrial and governmental customers in Sao Paulo. SBS has an average four-quarter earnings surprise of 30.8%.

CarGurus is an online automotive marketplace connecting buyers and sellers of new and used cars. CARG has an average four-quarter earnings surprise of nearly 11.8%.

AptarGroup is a global supplier of a broad range of innovative dispensing, sealing, and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer healthcare, injectables, food and beverage markets. ATR has an average four-quarter earnings surprise of nearly 7.3%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

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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

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Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp (SBS):Free Stock Analysis Report

AptarGroup, Inc. (ATR):Free Stock Analysis Report

CarGurus, Inc. (CARG):Free Stock Analysis Report

Microvast Holdings, Inc. (MVST):Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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