Stocks of 20 Companies with Improved Profit Margins and High Growth Potential

At the end of each earnings season, after most S&P 500 companies have disclosed their results, analysts typically examine trends in profit margins and revenue growth. The rationale is simple: when companies manage to boost sales while also expanding profit margins, it's usually a strong signal of business strength.

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This kind of analysis was last conducted in May, with findings that were based on recent but backward-looking data. Now, between earnings periods, it's an ideal time to shift focus forward—identifying companies that are not only becoming more profitable but are also expected to see solid revenue growth in the coming years. This latest analysis takes that forward-looking approach, using projections that extend through 2027.

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The starting point was the list of S&P 500 components, specifically 455 companies for which gross profit and operating margins are available through FactSet. Companies in the financial sector were largely excluded due to the unique ways banks and insurers report profitability, which don’t translate cleanly to standard margin metrics. FactSet calculates these margins using consistent methods, so their numbers may differ slightly from what individual companies report.

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Gross margin, in simple terms, measures how much a company retains from its sales after covering the direct costs of goods or services. It is calculated by subtracting cost of goods sold from net sales, then dividing that figure by total net sales. Net sales factor out discounts and returns. This margin is a strong indicator of a company’s pricing strength and operational efficiency.

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Operating margin takes things further by including other operating expenses—those not directly tied to production. It reflects earnings before interest and taxes (EBIT) as a percentage of sales, giving a broader view of the company’s profitability.

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In this new screen, 251 of the 455 S&P 500 companies had improved their gross margins compared to the same quarter last year, while 261 showed better operating margins. A total of 198 companies improved on both fronts.

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Among those 198, 159 companies also grew their quarterly sales per share. Using sales per share instead of total revenue helps adjust for stock issuance, which can happen during events like acquisitions. If a company issues more shares to buy another company, its total revenue might jump, but sales per share offer a more accurate view of actual performance relative to ownership dilution.

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For these 159 companies, analysts then looked at expected compound annual growth rates (CAGR) for revenue from 2025 through 2027. These estimates, based on consensus projections compiled by FactSet, were adjusted to calendar years, even if the companies have different fiscal year-ends.

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Out of the group, 20 companies emerged with the highest projected revenue growth through 2027, along with improved gross and operating margins:

• Eli Lilly (LLY) leads with an estimated 18.7% sales CAGR, and significant gains in both gross and operating margins.
• Oracle (ORCL) follows closely with a 17.6% CAGR, showing strong margin expansion.
• DoorDash (DASH) is growing fast too, with a 17.4% CAGR, and notable improvement in both margin metrics.
• Insulet (PODD), Broadcom (AVGO), and Teradyne (TER) all hover around 17% CAGR, reflecting strong fundamentals and solid margin improvements.
• Fair Isaac (FICO), Advanced Micro Devices (AMD), and Uber (UBER) also made the list, each showing notable profit gains and revenue growth potential.
• Other familiar names on the list include Meta Platforms (META), Micron Technology (MU), Fortinet (FTNT), Intuit (INTU), Netflix (NFLX), and Seagate Technology (STX).

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For example, Meta Platforms is projected to grow sales by 12.6% annually through 2027, with gross and operating margins already at elevated levels. Micron stands out with a dramatic improvement in operating margin—from 32.5% to 48.3%—while projecting 13.5% CAGR in sales.

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Other notable entries include Workday (WDAY), CoStar Group (CSGP), Enphase Energy (ENPH), and Quanta Services (PWR). Each shows some combination of margin expansion and double-digit sales growth expectations.

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While companies combining stronger margins with rapid growth may seem especially appealing, it’s important to remember that this screen is just a starting point. Investors should do their own due diligence before making investment decisions, including deeper research into a company's business model, competitive positioning, and long-term outlook. Stock screens highlight possibilities, but thoughtful analysis is still essential.

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