The morning has been bad for the market. The Nasdaq is trading down 0.3%; the S&P 500 has slipped 0.3%; and the Dow has decreased 0.4%. The basic materials sector is the category of stocks that accounts for companies involved with the discovery, development and processing of raw materials. This sector includes the mining and refining of metals, chemical producers and forestry products. The basic materials sector is sensitive to changes in the business cycle. Because the sector supplies materials for construction, it depends on a strong economy. This sector is also sensitive to supply and demand fluctuations because the price of raw materials, such as gold or other metals, is largely demand driven.
The Basic Materials sector (XLB) is currently lagging behind the overall market, down 0.7%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Kronos Worldwide, Inc. (NYSE:KRO)||$1.82 billion||-7.6%|
|Molycorp Inc. (NYSE:MCP)||$2.07 billion||-5.2%|
|AptarGroup, Inc. (NYSE:ATR)||$3.43 billion||-4%|
|Rockwood Holdings, Inc. (NYSE:ROC)||$3.38 billion||-3%|
|Georgia Gulf Corporation (NYSE:GGC)||$927.9 million||+3%|
|Sherwin-Williams (NYSE:SHW)||$13.72 billion||-2.4%|
|PPG Industries (NYSE:PPG)||$16.08 billion||-2%|
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After a decline of 7.6%, Kronos Worldwide (NYSE:KRO) has hit a share price of $14.48. The company's volume is currently 916,328 shares for the day, in line with 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. KRO's gross profit margin is 43.7%. Relative to its gross profit margin, KRO's operating profit margin of 37.3% and net profit margin of 19.1% are low.
Valuation ratios include 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 debt-equity (D/E) ratio is a leverage ratio. KRO has a low debt-equity ratio of 46%. Companies with low D/E ratios are more attractive to investors because they are better able to protect their business interests in times of decline. This easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage.
Falling 5.2%, Molycorp (NYSE:MCP) is currently at a share price of $20.39. The company's volume for the day so far is 1.1 million shares. This is below yesterday's volume of 1.7 million shares. A stock's volume conveys how excited investors are about it. 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. MCP has a gross profit margin of 56.3%. The operating profit margin indicates how much EBIT is generated per dollar of sales. Operating margin for MCP is -0.6%. This is because the company reported a net operating loss in the most recent quarter. Net profit margin is calculated by dividing net income by sales; the higher the net profit margin, the better. Net profit margin for the company is 25.5%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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 a good value when purchasing a stock with a high price/earnings ratio (P/E ratio). MCP has a PEG ratio of 1.19, which is consistent with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
Slipping 4%, AptarGroup (NYSE:ATR) is currently trading at $49.39 per share. With 208,688 shares changing hands so far today, the company's volume is consistent with its current three-month average. Price change alone is not enough to know how a stock is doing. Volume is an important secondary indicator used to confirm trends suggested by price movement. Profit-margin ratios help us to keep score, as measured over time, of management's ability to generate profits and manage costs and expenses. There are three key profit-margin ratios: gross profit margin, operating profit margin and net profit margin. ATR's gross profit margin is 32.6%. ATR's operating margin of 11.9% and net margin of 7.8% are low relative to its gross margin.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. If the price/book value ratio of a stock is high, it may indicate that the stock is expensive, while a lower ratio may indicate that the stock is a bargain. ATR's P/B ratio of 2.38 shows that its share price is higher than its book value. This high share price relative to asset value is likely to indicate that the company has been earning a very high return on its assets. P/B has its shortcomings but is still widely used as a valuation metric, more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks; book value does not carry much meaning for service-based firms with few tangible assets. SEE: How Buybacks Warps The Price-To-Book Ratio
Rockwood Holdings (NYSE:ROC) has decreased to $42.32 per share, a 3% fall. This morning, the company is trading a volume of 450,235 shares. High volume indicates a lot of investor interest while low volume indicates the opposite. Margin ratios highlight companies that are worth further examination. ROC has a gross profit margin of 43%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. ROC has an operating profit margin of 16.7%. Net profit margin examines how effectively a company is managed and how profitable it is by looking at how much of each dollar in revenues ultimately hits the company's bottom line. Net margin is 9.6%.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. ROC's dividend yield is 3.2%. A higher dividend yield may indicate a risk of a fall in the price of the security, or a cut in the level of dividend payments, either of which would have the effect of dropping future returns. SEE: Investment Valuation Ratios: Dividend Yield
Georgia (NYSE:GGC) has risen 3% and is currently trading at $27.90 per share. The company's volume is currently 205,534 shares for the day, 0.4 times the current daily average. If a stock price makes a big move up or down, volume lets us know the significance of that move. 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. GGC has a low gross profit margin of 13%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. Compared with its gross profit margin, GGC's operating profit margin of 7.9% and net profit margin of 2.5% are low.
A wide array of ratios can be used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation. 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 GGC is 0.36, which is relatively low. Low P/S ratios can indicate unrecognized value potential - so long as other criteria like high profit margins, low debt levels and growth prospects are in place. It is important to keep in mind when looking at the P/S ratio that just because a company is generating revenues, this does not mean that the company is profitable, and in the long run, profits drive stock prices.
Currently trading at $129.57 per share, Sherwin-Williams (NYSE:SHW) has fallen 2.4%. So far today, the company's volume is 557,993 shares. Trading activity is down from yesterday when 827,786 shares changed hands. 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 is a great way to understand the profitability of companies. The gross profit margin for SHW is 42.6%. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. SHW's operating profit margin is 6.9%. While ratios such as price/earnings (P/E) or price/book value look at the relative attractiveness of a stock, the net profit margin ratio focuses on company performance rather that stock market valuation. The company's net profit margin is 5.2%.
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. 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. SHW has a P/E ratio of 29.6, high compared to the industry average of 16.99. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. To determine the P/E ratio, an investor divides the market price of the stock by the earnings-per-share (EPS) of the stock. SEE: Investment Valuation Ratios: Price/Earnings Ratio
At $103.43, PPG (NYSE:PPG) has slipped 2%. The company's volume is currently 446,615 shares for the day, 0.5 times the current three-month average. If a stock is trading on low volume, then there is not much interest in the stock. On the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock. There are many tools investors can use to evaluate a stock, including margins. Margins, quite simply, are earnings expressed as a ratio, or a percentage of sales, and this allows investors to compare the profitability of different companies, while net earnings, which are presented as an absolute number, cannot. PPG has a gross profit margin of 39.2%. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. Operating profit margin for PPG is 11.8%. Net profit margin is a good ratio for determining how a company is performing. Net profit margin for the company is 5.8%.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The assumption with high price/earnings stocks (generally of the growth variety) is that investors are willing to buy at a high price because they believe that the stock has significant growth potential, and the price/earnings to growth (PEG) ratio helps investors determine the degree of reliability of that growth assumption. PPG's PEG ratio of 2.17 is in line with the industry average. 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. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.
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