Analyzing the net profit margin of companies are important. Even though a company’s profits may be high, a low net profit margin means that it is in a dangerous position. If some things go wrong, the profit can easily become losses because the low net profit margins do not give any buffer.
It is also good to avoid companies that have negative 12-month forward analyst estimates as these stocks generally underperform. These are the stocks with negative 12-mth net profit margins.