Highest Gross Margin Stocks
100 stocks · Updated May 10, 2026
Gross margin — revenue minus cost of goods sold, divided by revenue — is a foundational measure of business quality, reflecting how much value a company retains from each sale before overhead costs. Companies with gross margins above 70% typically have powerful competitive moats: software (near-zero marginal reproduction cost), pharmaceuticals (blockbuster drugs after R&D payback), or brands commanding premium pricing. High gross margins provide room to invest in R&D, sales, and marketing that sustains competitive advantages.
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Frequently Asked Questions
What gross margin level indicates a high-quality business?
Generally, gross margins above 50% indicate a strong business; above 70% is exceptional. Pure software businesses often exceed 75-80%. Pharmaceutical companies with patented drugs can reach 90%+ during peak revenue periods.
Why does gross margin matter more than net margin in some cases?
Gross margin reflects the underlying economics of the product itself. High gross margin gives management flexibility to invest in growth. A company with 80% gross margin investing heavily in sales has better fundamental economics than a 20% gross margin business that's profitable.
Can a company improve its gross margin over time?
Yes — through pricing power, shifting product mix toward higher-margin products, manufacturing scale efficiencies, and reduction of input costs. Software companies in particular expand gross margins as infrastructure costs are spread over more revenue.
What industries have structurally low gross margins?
Retail (3-30%), airlines (20-30%), restaurants (25-35%), and automotive manufacturing (10-20%) operate with structurally low gross margins. Their profitability depends entirely on operational efficiency and cost control rather than inherent product economics.