Low Profit Margin

General
1

@yuvaltaylor, in one of your articles you said that companies with low profit margins are more likely to see future EPS growth than companies with high profit margins.

But how do you define low profit margin? Do you only use a “the lower the better” ranking for profit margins as long as they are still in positive territory, or do you also include negative profit margins?

2

I also include negative profit margins.

3

In conclusion, does this mean that the best rankings regarding this factor are reserved for all those companies with extremely high negative profit margins?

4

Yes. If sales are strong and earnings are terrible (the recipe for low profit margin), a company has a better chance of growing earnings than if sales are weak or earnings are high.

5

Thanks for your explanation.