The market has been slipping so far today. The Nasdaq has declined 2%; the S&P 500 is trading down 1.7%; and the Dow has fallen 1.3%. The capital goods sector is the category of stocks related to the manufacture or distribution of goods. The sector is diverse, containing companies that manufacture machinery used to create capital goods, electrical equipment, aerospace and defense, engineering and construction projects. It is also referred to as the "industrials sector". Performance in the capital goods sector is sensitive to fluctuations in the business cycle. Because it relies heavily on manufacturing, the sector does well when the economy is booming or expanding. As economic conditions worsen, the demand for capital goods drops off, usually lowering the prices of stocks in the sector.
The Capital Goods sector (XLI) is currently lagging behind the overall market, down 2%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Cubic Corporation (NYSE:CUB)||$1.21 billion||+5.8%|
|Cemex SAB de CV (ADR) (NYSE:CX)||$5.95 billion||+4.1%|
|Nordson Corporation (Nasdaq:NDSN)||$3.24 billion||-3.7%|
|Joy Global Inc. (NYSE:JOY)||$5.74 billion||-3.4%|
|NACCO Industries, Inc. (NYSE:NC)||$894.5 million||-3.4%|
|Caterpillar (NYSE:CAT)||$55.42 billion||-3.2%|
|SPX Corporation (NYSE:SPW)||$3.26 billion||-3.1%|
Broker Summary: TD Ameritrade Thinkorswim
Cubic (NYSE:CUB) has risen 5.8% to hit a current price of $47.78 per share. The company's volume for the day so far is 135,867 shares. This is 1.3 times the current daily average. 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. 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. CUB has a low gross profit margin of 24.7%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. CUB has an operating profit margin of 9.9% and a net profit margin of 6.8%, both low compared to its gross profit margin.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The debt ratio shows the proportion of assets that a company is financing through debt. CUB's debt ratio of 38.3% is on the low side. In other words, the company is less sensitive to changes in business or interest rates since less of its cash flow is dedicated to paying off loan expenses. 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.
Cemex SAB de CV (NYSE:CX) has moved up 4.1% and is currently trading at $5.95 per share. This morning, 9.3 million shares have been traded, above yesterday's volume of 5.6 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. CX has a gross profit margin of 37.5%. Net profit margin is a good ratio for determining how a company is performing. Net profit margin is -13.1%. A negative net profit margin means the company spent more money than it made. 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. Operating profit margin for CX is 6.1%.
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. 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. The D/E ratio for CX is 134%. Generally, a high D/E ratio means that the company may have difficulty generating enough cash to pay off its debts. 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.
Nordson (Nasdaq:NDSN) is trading at $48.54 per share, down 3.7%. So far today, the company's volume is 57,367 shares. Volume indicates the level of interest that investors have in a company at its current price. Margin analysis is a great way to understand the profitability of companies. NDSN's gross profit margin is 60.2%. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. NDSN has an operating profit margin of 24.4%. Comparing net profit margins for companies with similar business models or in similar industries can yield valuable information as to which business is actually performing better. Net margin is 16.3%.
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. Using price/earnings ratios (P/E ratios) does not give an indication of whether or not an individual company's ratio is reasonable, a shortcoming that can be corrected by using the price/earnings to growth ratio (PEG ratio). NDSN's PEG ratio of 1.72 is in line 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.
Joy Global (NYSE:JOY) has decreased to $52.36 per share, a 3.4% fall. The company's volume for the day so far is 733,814 share, 0.4 times its average over the past three months. Volume is used to evaluate how meaningful the price movement of a stock is. Margin ratios highlight companies that are worth further examination. JOY has a gross profit margin of 35.9%. Compared with its gross profit margin, JOY's operating profit margin of 21.6% and net profit margin of 13.6% are low.
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 P/E ratio has been used for ages by analysts and still remains one of the most relevant pieces of stock valuation. JOY's P/E ratio of 8.3 is under the industry average of 10.47. Companies with low P/E ratios may find it easier to surprise the market to the upside, even if their financial performance is not as strong as that of companies with high P/E ratios. 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: Profit With The Power Of Price-To-Earnings
NACCO Industries (NYSE:NC) is down 3.4% to reach $102.99 per share. This morning, the company's volume is 2,805 shares. This is 0.1 times its current daily 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. 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. NC has a low gross profit margin of 19.2%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. NC's operating margin of 4.7% and net margin of 3.7% are low relative to its gross margin.
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. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. The capitalizion ratio of 9.4% is on the low end. A low capitalization ratio can signify a failure to leverage equity into investment, missing valuable opportunities for growth and expansion. The capitalization ratio is one of the more meaningful debt ratios because it focuses on the relationship of debt liabilities as a component of a company's total capital base, which is the capital raised by shareholders and lenders.
Falling 3.2%, Caterpillar (NYSE:CAT) is currently at a share price of $82.23. The company's volume is currently 3.8 million shares for the day, below yesterday's volume of 6.4 million shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. CAT has a gross profit margin of 31.7%. Relative to its gross profit margin, CAT's operating profit margin of 14.5% and net profit margin of 8.4% are low.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. 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. CAT has a P/B ratio of 3.58 which shows that its share price is higher than its book value. This may be a sign that the company is overvalued. P/B value comparisons should be made among companies in the same industry rather than across industries. SEE: Using The Price-To-Book Ratio To Evaluate Companies
At $62.29, SPX (NYSE:SPW) has slipped 3.1%. The company's volume for the day so far is 143,546 shares. Volume is an important indicator because it indicates how significant a price shift is. 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. The gross profit margin for SPW is 29%. The operating profit margin indicates how much EBIT is generated per dollar of sales. Operating profit margin for SPW is 1.4%. Net profit margins are those generated from all phases of a business, including taxes. The company's net profit margin is 3.2%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. SPW has a low dividend yield of 1.6%. This may indicate that the company's stock is overpriced. A stock's dividend yield depends on the nature of a company's business, its posture in the marketplace (value or growth oriented), its earnings and cash flow, and its dividend policy. SEE: Investment Valuation Ratios: Dividend Yield
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.