After the morning's trading, the market is not looking good. The Nasdaq has decreased 1.3%; the S&P 500 is trading down 0.8%; and the Dow is down 0.5%. Also known as the "Big Board", the NYSE relied for many years on floor trading only, using the open outcry system.
The biggest movers traded on the NYSE so far are:
|Company||Market Cap||Percentage Change|
|Texas Industries, Inc. (NYSE:TXI)||$1.06 billion||+8.7%|
|Merck & Co (NYSE:MRK)||$125.34 billion||+4.2%|
|AutoZone (NYSE:AZO)||$13.81 billion||+4%|
|Quest Diagnostics (NYSE:DGX)||$9.64 billion||+4%|
|Procter & Gamble (NYSE:PG)||$168.24 billion||+3.5%|
|BP Prudhoe Bay Royalty Trust (NYSE:BPT)||$2.6 billion||-3.4%|
|CNOOC Limited (ADR) (NYSE:CEO)||$88.39 billion||-3.2%|
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After an increase of 8.7%, Texas Industries (NYSE:TXI) has reached a current price of $41.35. So far today, the company's volume is 614,054 shares. Volume is used to evaluate how meaningful the price movement of a stock is. Margin ratios highlight companies that are worth further examination. TXI has a low gross profit margin of 13.3%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. Both TXI's operating and net profit margins are negative. This is because the company reported net and operating losses in the most recent quarter.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. TXI's P/B ratio of 1.79 shows that its share price is higher than its book value. This implies that investors expect management to create more value from a given set of assets and/or that the market value of the firm's assets is significantly higher than their accounting value. P/B value comparisons should be made among companies in the same industry rather than across industries. SEE: How Buybacks Warps The Price-To-Book Ratio
Increasing 4.2%, Merck (NYSE:MRK) is trading at $42.95 per share. So far today, 23.1 million shares have changed hands, above yesterday's volume of 12.4 million 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. Margin analysis tells us how effectively management can wring profits from sales and how much room a company has to withstand a downturn, fend off competition and make mistakes. MRK has a relatively high gross profit margin of 80.4%. A high gross profit margin generally means that the company can make a reasonable profit on sales, provided that overhead costs do not increase. MRK's operating margin of 21.6% and net margin of 14.5% are high relative to its gross margin.
In making a decision about a potential or existing investment, valuation ratios are useful as a basis for seeing whether the stock price is too high, reasonable, or a bargain. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. MRK's debt-equity ratio of 33% is on the low end. This shows that the company's assets are financed primarily through equity. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
AutoZone (NYSE:AZO) has moved up 4% and is currently trading at $383.70 per share. The company is currently trading a volume of 463,344 shares. This is 0.8 times its current three-month average. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. Profit-margin ratios can give investors deeper insight into management efficiency than earnings alone can provide. Gross profit margin, operating profit margin and net margin are commonly used margins. The gross profit margin for AZO is 53.9%. Investors trying to assess a company's ability to continue to pay its fixed expenses even if its business declines may want to evaluate the operating margin ratio. AZO has an operating profit margin of 20.2%. Net profit margin compares net income with sales. The company has a net profit margin of 10.7%.
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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. The P/S ratio for AZO is a high 1.68. This could be a good sign if the share price increases. It is important to compare P/S ratios for companies in the same industry, as ratios can vary quite widely for companies in different industries.
Rising 4%, Quest Diagnostics (NYSE:DGX) is currently trading at $63.19 per share. At 1.7 million shares, the company's volume so far today is 1.7 times the current daily average. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. Calculating the profit margin is a great way to gain insight into aspects of how well a company generates and retains money. Instead of measuring how much managers earn from assets, equity or invested capital, profit-margin ratios measure how far a company stretches its total revenue or total sales. DGX has a gross profit margin of 44.9%. Operating margin provides a measure of a company's ability to pay its fixed costs such as interest on debt, particular if its business were to decline in the future. DGX's operating profit margin is 15.5%. Net profit margin is calculated by dividing net income by sales. Net margin is 9.5%.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt ratio shows the proportion of assets that a company is financing through debt. DGX's debt ratio is 59.1%. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Procter & Gamble (NYSE:PG) has risen 3.5% to hit a current price of $63.54 per share. The company's volume for the day so far is 15.2 million shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. Profit-margin ratios measure how much money a company squeezes from its total revenue or total sales. Investors can look at a company's gross profit margin, operating profit margin and net margin to understand a company's profitability. PG's gross profit margin is 52.9%. The operating profit margin indicates how much EBIT is generated per dollar of sales. Operating profit margin for PG is 16.3%. Net profit margin is calculated by dividing net income by sales; the higher the net profit margin, the better. The company's net profit margin is 11.4%.
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. Dividend yield is a way to measure how much cash flow you are getting for each dollar invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends. PG has a dividend yield of 3.7%. It is important to remember that dividends are only one component of a stock's return and capital appreciation (or decline) must also be considered when evaluating a security. SEE: Investment Valuation Ratios: Dividend Yield
BP Prudhoe Bay (NYSE:BPT) is trading at $117.23 per share, down 3.4%. At 32,481 shares, the company's volume so far today is while it was 100,465 shares yesterday. If a stock price moves on high volume, this means that the change is a significant one. Investment valuation ratios can be very useful in determining the value of a stock, but it is very important to keep in mind that while some financial ratios have general rules (or a broad application), in most instances it is a prudent practice to look at a company's historical performance and use peer company/industry comparisons to put any given company's ratio in perspective. A simple P/E ratio can reveal the stock's real market value and show how the valuation compares to its industry group or a benchmark like the S&P 500 Index. P/E ratio for BPT is 12.7. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Profit With The Power Of Price-To-Earnings
CNOOC Limited (NYSE:CEO) has fallen 3.2% and is currently trading at $191.60 per share. This morning, the company is trading a volume of 38,703 shares. This is 0.3 times its average volume over the past three months. Volume indicates the level of interest that investors have in a company at its current price. 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. 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. The P/B ratio for CEO is 2.05, indicating that the stock is trading for more 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. 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
The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. Daily stock performance should be weighed against historical performance and put in context of the market overall. Tools like valuation ratios and profit margins, however, are only as useful as the context you put them in; remember to take historical data and competitor performance into account.
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