The market is having a good day so far: the Nasdaq has increased 0.1%; the S&P 500 has climbed 0.5%; and the Dow is trading up 0.4%. The Nasdaq Composite Index is a capitalization-weighted index, with each company weighted in proportion to its market value.
The biggest movers traded on the NASDAQ so far are:
|Company||Market Cap||Percentage Change|
|Servicesource International Inc (Nasdaq:SREV)||$839.5 million||-29.7%|
|Digital River, Inc. (Nasdaq:DRIV)||$656.6 million||-27.3%|
|FARO Technologies, Inc. (Nasdaq:FARO)||$728.1 million||-22%|
|InterDigital, Inc. (Nasdaq:IDCC)||$1.16 billion||+13.8%|
|Nice Systems Ltd. (ADR) (Nasdaq:NICE)||$2.31 billion||-13.3%|
|True Religion Apparel, Inc. (Nasdaq:TRLG)||$676.7 million||-12.9%|
|Sourcefire, Inc. (Nasdaq:FIRE)||$1.51 billion||-11.8%|
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Shares of Servicesource International (Nasdaq:SREV) are currently trading at $7.93, a steep decline of 29.7%. So far today, 4.1 million shares have changed hands, which is more trading activity than there was yesterday. If a stock price moves on high volume, this means that the change is a significant one. A company's investment value can be estimated using valuation ratios such as the price to earnings (P/E) ratio, the price to earnings growth (PEG) ratio, the price to sales (P/S) ratio, the price to book (P/B) ratio, and the dividend yield. The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm. SREV's stock is trading for more than its book value with a P/B ratio of 2.87. This may be a sign that the company is overvalued. P/B value ratios are particularly useful to value investors, distressed or "vulture" investors, or any other investors purchasing beaten-down securities but are less useful to investors focused on growth stocks, purchasing IPOs, or investing in technology or other "asset-lite" companies. SEE: Using The Price-To-Book Ratio To Evaluate Companies
Taking a 27.3% hit, Digital River (Nasdaq:DRIV) is currently trading at $12.93 per share. So far today, the company's volume is 2.6 million shares. This is 5.3 times its current three-month average. Volume is an important indicator in technical analysis as it is used to measure the worth of a market move. If the markets have made a strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). DRIV has a P/E ratio of 42.4. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: The P/E Ratio: A Good Market-Timing Indicator
FARO Technologies (Nasdaq:FARO) is currently trading at $33.55 per share, after a steep drop of 22%. The company's volume for the day so far is 455,952 shares. As a stock moves up or down, it is important to pay attention to the trading volume. This indicates the level of interest: the higher the volume, the more the interest. While investment valuation ratios are useful tools in estimating the attractiveness of an investment, remember that it is important to look at a company's historical performance and compare the company ratios with its competitors and industry overall. The price/sales ratio measures a company's stock market value by its total revenues or alternatively, a company's price per share by its revenue per share. FARO has a high P/S ratio of 3.7. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. A limitation of the P/S ratio is that the price component measures only stock market captialization, while sales are a function of the entire capital structure, potentially leading to wide differences between levered and unlevered companies.
InterDigital (Nasdaq:IDCC) has soared 13.8% to reach a current price of $31.08 per share. At 2.9 million shares, the company's volume so far today is 4.5 times the average daily volume. If a stock price makes a big move up or down, volume lets us know the significance of that move. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The debt ratio shows the proportion of assets that a company is financing through debt. IDCC's debt ratio is 52.6%. However, one thing to note with this ratio: it isn't a pure measure of a company's debt (or indebtedness), as it also includes operational liabilities, such as accounts payable and taxes payable.
Shares of Nice Systems Ltd (Nasdaq:NICE) are currently trading at $31.20, a steep decline of 13.3%. The company is trading at a volume of 667,792 shares. This is greater than yesterday's volume of 235,668 shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. A company's value as an investment is more easily estimated using valuation ratios such as the price to earnings (P/E) ratio, the price to earnings growth (PEG) ratio, the price to sales (P/S) ratio, the price to book (P/B) ratio, and the dividend yield. One of the favorite tools of many value investors is analyzing price/book value ratios, as it provides a measure of the underlying value of a company's assets as compared to the valuation of its equity. NICE has a P/B ratio of 1.66 which shows that its share price is higher than its book value. It is important to take the company's debt into account when using the P/B ratio as debt can boost a company's liabilities to the point where they wipe out much of the book value of its hard assets, creating artificially high P/B values. Users need to be careful when applying this ratio though, as it is more useful for industrial companies that have a lot of tangible assets than it is for technology or consumer product companies that may not have much in the way of hard assets. SEE: Investment Valuation Ratios: Price/Book Value Ratio
Taking a 12.9% hit, True Religion Apparel (Nasdaq:TRLG) is currently trading at $22.85 per share. The company's volume is currently 1.6 million shares for the day, 4.3 times its current three-month average. High volume indicates a lot of investor interest while low volume indicates the opposite. Valuation ratios like the price to earnings (P/E) ratio, the price to earnings growth (PEG) ratio, the price to sales (P/S) ratio, the price to book (P/B) ratio, and the dividend yield are useful in determining how attractive a potential or existing investment is. Perhaps one of the most widely-used stock analysis tools is the price-to-earnings ratio, or P/E. TRLG's P/E ratio of 14.2 falls below the industry average of 15.72. A low P/E might arise due to substantial inherent risk of the firm and its operations, poor return on equity, or improper valuation of the market. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: How To Find P/E And PEG Ratios
After a precipitous drop of 11.8%, Sourcefire (Nasdaq:FIRE) is now trading at a share price of $45.03. So far today, the company's volume is two million shares. Volume is used to evaluate how meaningful the price movement of a stock is. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The price/earnings to growth (PEG) ratio compares a company's P/E ratio to its earnings-per-share growth rate, which tells you whether or not you are getting a good value when purchasing a stock with a high price/earnings ratio (P/E ratio). PEG ratio for FIRE is 13.21. While P/E ratios are important indicators of market value, a high P/E in and of itself is not bad because it may indicate a company whose earnings are growing very rapidly, so many investors look at the PEG ratio in order to get an idea of whether or not a particular P/E ratio is justified by underlying earnings growth.
The Bottom Line The nature of the market is such that stocks will have good days and bad days. It is important to weigh current activity against historical performance when making any investment decisions. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.