When the operating income margin continues expanding, it means that the company is keeping the costs of goods sold and other operating expenses under predetermined limits while net sales are growing.
The operating income margin is a more effective measure than the net income margin when assessing whether the company is capable of generating income, as the metric excludes those items on which the company has no or only limited control, but that could weigh on the net income considerably in a given year.
Thus, investors may want to have a look at the following three stocks, as their operating income margins have expanded over recent years, beating most competitors.
NVIDIA Corp
The first stock investors may want to have a look at is NVIDIA Corp (NVDA, Financial), a Santa Clara, California-based producer of graphics processing units and system on chip units for the consumer electronics, computer hardware, semiconductors and video game industries.
The company saw its trailing 12-month operating income margin (30.12% as of the fiscal quarter that ended on Jan. 31) increase by 5.8% on average every year over the past five years. The operating margin ranks higher than 92% of the 833 companies that operate in the semiconductors industry.
The share price rose 14-fold over the past five years to trade at $513.57 at close on Friday for a market capitalization of $318.41 billion and a forward dividend yield of 0.12% based on a 16 cents quarterly cash dividend the company will pay per common share on March 31.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $640.99 per share.
Vanguard Group Inc leads the group of top fund holders with 7.75% of shares outstanding. It is followed by BlackRock Inc. with 7.24% of shares outstanding and FMR LLC with 7.21% of shares outstanding.
ASML Holding NV
The second stock to consider is ASML Holding NV (ASML, Financial), a Dutch developer and marketer of advanced semiconductor equipment systems for memory and logic chip manufacturers.
The company saw its trailing 12-month operating income margin (35.35% as of the December 2020 quarter) increase by 1.5% on average every year over the past five years. The operating margin ranks higher than 93% of the 833 companies in the semiconductors industry.
The share price of $625.67 at close on Friday has gained 518.56% over the past five years, determining a market capitalization of $260.60 billion and a trailing 12-month dividend yield of 0.46% based on a semi-annual cash dividend of $1.396 per common share the company paid in on Nov. 13, 2020.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $575.17 per share.
Price T Rowe Associates Inc /Md/, Capital World Investors and Capital International Investors are amid the largest top fund holders of the company, holding 2.61%, 1.91% and 1.40% of shares outstanding, respectively.
Adobe Inc
The third stock to be under consideration is Adobe Inc (ADBE, Financial), a San Jose, California-based software company.
The company saw its trailing 12-month operating income margin (37.23% as of the fiscal quarter that ended on Feb. 28) increase by 9.8% on average every year over the past five years. The operating margin ranks higher than 96% of the 2,319 companies that operate in the software industry.
The share price has risen 400.20% over the past five years to trade at $469.09 at close on Friday for a market capitalization of $224.85 billion. Currently, the company is not paying any dividends.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $566.82 per share.
Vanguard Group Inc dominates the group of top fund holders with 8% of shares outstanding. It is followed by BlackRock Inc. with 7.89% of shares outstanding and FMR LLC with 6.31% of shares outstanding.
Disclosure: I have no positions in any securities mentioned in this article.
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