When the operating income margin keeps on expanding, it means that the company is maintaining 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 evaluating 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 remarkably in some years.
Thus, investors could be interested in the following three stocks, as their operating income margins have expanded in recent years, outperforming most competitors.
Netflix Inc
The first stock investors could be interested in is Netflix Inc (NFLX, Financial), a Los Gatos, California-based provider of streaming entertainment services.
The company saw its trailing 12-month operating income margin (18.34% as of the December 2020 quarter) grow by 35.6% on average every year over the past five years.
The share price rose five-fold over the past five years to trade at $497.89 at close on Friday for a market capitalization of $220.77 billion. Currently, Netflix Inc does not pay dividends.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $615.97 per share.
Vanguard Group Inc dominates the group of top fund holders with 7.50% of shares outstanding. It is followed by BlackRock Inc. with 6.50% of shares outstanding and Capital Research Global Investors with 6.44% of shares outstanding.
Abbott Laboratories
The second stock investors could be interested in is Abbott Laboratories (ABT, Financial), a U.S. medical devices giant based in North Chicago, Illinois.
The company saw its trailing 12-month operating income margin (15.48% as of the December 2020 quarter) grow by 3.4% on average every year over the past five years.
The share price of $117.13 at close on Friday has gained nearly 203% over the past five years, determining a market capitalization of $208.12 billion. The stock grants a trailing 12-month dividend yield of 1.38% and a forward dividend yield of 1.54%. The most recent quarterly cash dividend of 45 cents per common share was paid on May 17, 2021.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $136.42 per share.
Vanguard Group Inc leads the group of top fund holders with 8.25% of shares outstanding. It is followed by BlackRock Inc. with 7.53% of shares outstanding and Capital Research Global Investors with 4.83% of shares outstanding.
Merck & Co. Inc
The third stock investors could be interested in is Merck & Co. Inc (MRK, Financial), a Kenilworth, New Jersey-based global healthcare company.
The company saw its trailing 12-month operating income margin (17.68% as of the December 2020 quarter) grow by 5.1% on average every year over the past five years.
The share price has risen nearly 40% over the past five years to trade at $79.18 at close on Friday for a market capitalization of $200.49 billion. The stock offers a trailing 12-month dividend yield of 3.18% and a forward dividend yield of 3.28%. Its last quarterly cash dividend of 65 cents per common share was paid on April 7, 2021.
On Wall Street, the stock has a median recommendation rating of overweight with an average target price of $95 per share.
Vanguard Group Inc is the leader in the group of top fund holders with 8.89% of shares outstanding. It is followed by BlackRock Inc. with 7.76% of shares outstanding and State Street Corp with 4.45% of shares outstanding.
Disclosure: I have no positions in any securities mentioned in this article.
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