Gross Margin Filter: Why High-Margin Stocks Are Better for the Wheel

What is gross margin?

Gross Margin = (Revenue − Cost of Goods Sold) ÷ Revenue × 100

Gross margin measures how much money a company keeps from each dollar of revenue after paying direct production costs. A software company might keep $0.75 of every revenue dollar (75% gross margin); a grocery retailer might keep $0.03 (3%).

The higher the gross margin, the more pricing power and flexibility the business has.

Why it matters for wheel traders

Gross margin is a moat indicator. Companies with high gross margins:

• Can absorb cost inflation without killing profitability.
• Have pricing power — they can raise prices to protect margins.
• Generate the slack cash flow needed to grow or return capital.

When you're assigned shares on a CSP, you need the stock to recover. High-margin businesses recover faster because their core economics are strong.

Sector benchmarks

Set your minimum relative to the sector you're screening. A 40% minimum works well for tech/healthcare; drop to 20% for industrials.

Using the filter

1. Open the Stock Screener.
2. Find Gross % in the Profitability section of the filters panel.
3. Set minimum to 30% for a broad, sector-agnostic screen.
4. Combine with Net % minimum 8% to ensure the gross profit flows through to the bottom line.

Common mistake: ignoring operating leverage

A company can have a 70% gross margin but still lose money if its sales and R&D costs are huge. Always check Net Margin too — high gross margin + high net margin = an efficiently run business.