I have been learning about how to read and understand a stock company's income statement and using those variables to determine the worth of the stock. My question is, what is a good profit margin for a company that would make it worthwhile to invest, 5%? And what are the most important indicators to look at when making decision's based on the company's fundamentals.
The short answer is that it depends on the industry.
In other words, margin alone - even in comparison to peers - will not be a sufficient index to track company success. I'll mention Apple quickly as a special case that has managed to charge a premium margin for a mass-market product. Few companies can achieve this.
As with all investment analysis, you need to have a very clear understanding of the industry (i.e. what is "normal" for debt/equity/gearing/margin/cash-on-hand) as well as of the barriers-to-entry which competitors face.
A higher-than-normal margin may swiftly be undermined by competitors (Apple aside). Any company offering perpetual above-the-odds returns may just be a Ponzi scheme (Bernie Maddof, etc.). More important than high-margins or high-profits over some short-term track is consistency of approach, an ability to whether adverse cyclical events, and deep investment in continuity (i.e. the entire company doesn't come to a grinding halt when a crucial staff-member retires).