The market is doing well so far today. The Nasdaq has risen 2.4%; the S&P 500 is up 1.9%; and the Dow has climbed 1.7%. The energy sector is the category of stocks that relate to producing or supplying energy. This sector includes companies involved in the exploration and development of oil or gas reserves, oil and gas drilling, or integrated power firms. Performance in the sector is largely driven by the supply and demand for worldwide energy. Energy producers will do very well during times of high oil and gas prices, but will earn less when the value of energy drops. Furthermore, this sector is sensitive to political events, which historically have driven changes in the price of oil.
Underperforming the market overall, the Energy sector (XLE) is up 2.1%, and these are its current biggest movers:
|Company||Market Cap||Percentage Change|
|Cimarex Energy Co. (NYSE:XEC)||$4.35 billion||+7%|
|Clayton Williams Energy, Inc. (Nasdaq:CWEI)||$537.1 million||+6.9%|
|EOG Resources (NYSE:EOG)||$22.96 billion||+5%|
|Pioneer Natural Res (NYSE:PXD)||$10.25 billion||+4.6%|
|Lufkin Industries, Inc. (Nasdaq:LUFK)||$1.73 billion||+4.4%|
|Continental Resources, Inc. (NYSE:CLR)||$11.4 billion||+4.2%|
|Occidental Petroleum (NYSE:OXY)||$65.65 billion||+4%|
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Cimarex (NYSE:XEC) is up 7% to reach a current price of $54.28 per share. The company's volume is currently 709,221 shares for the day, 0.7 times the average daily volume. Volume is an important indicator because it indicates how significant a price 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. XEC's gross profit margin of 80.8% is on the high side. This means that the company will have a lot of money left over to spend on other business operations, such as research and development or marketing. Net profit margins are those generated from all phases of a business, including taxes. Relative to its gross profit margin, the company has a high net profit margin of 29.5%. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. The operating margin ratio can also be useful for tracking an individual company's performance across time, where an increasing ratio is good and a declining ratio may provide cause for concern that a company's business model is weakening. XEC has an operating profit margin of 39%.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. 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. XEC's PEG ratio is 20.5. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
After rising 6.9%, Clayton Williams Energy (Nasdaq:CWEI) is currently trading at a share price of $47.22. The company is currently trading a volume of 60,121 shares. The trading volume for a stock indicates the level of investor interest. Margin analysis is a great way to understand the profitability of companies. CWEI has a gross profit margin of 67.1%. As with other margin ratios, the operating margin is a percentage, which allows for more standardized comparison across time and among different companies of different sizes. CWEI's operating profit margin is 24.6%. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. Net profit margin for the company is 25.8%.
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/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. CWEI's P/B ratio of 1.63 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. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: How Buybacks Warps The Price-To-Book Ratio
Rising 5%, EOG (NYSE:EOG) is currently trading at $89.46 per share. So far today, the company's volume is 1.8 million shares, 0.5 times its average over the past three months. A stock's volume conveys how excited investors are about it. Margin ratios highlight companies that are worth further examination. EOG has a high gross profit margin of 84.3%. This may indicate that the company is over-pricing its products and/or services. EOG's operating margin of 19.9% and net margin of 11.6% are high relative to its gross margin.
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. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. The dividend yield for EOG is 0.8%, which is on the low end. If you are an income investor, this stock may not be attractive to you. To calculate the dividend yield, divide the level of dividends by the stock price; the higher the yield, the more attractive the security. SEE: Dividend Yield For The Downturn
Pioneer Natural Res (NYSE:PXD) is at $87.15 per share after an increase of 4.6%. The company is trading at a volume of 1.2 million shares. This is less trading activity than there was yesterday. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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 PXD is 74.3%. The operating margin ratio can vary widely across industries, so investors should focus on comparing companies from similar industries or with similar business models. PXD has an operating profit margin of 37.2%. Net profit margin compares net income with sales. Net margin is 30.2%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. The P/S ratio for PXD is a high 5.46. This could be a good sign if the share price increases. 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.
Lufkin Industries (Nasdaq:LUFK) is currently trading at $53.73 per share, a 4.4% increase. So far today, the company's volume is 109,156 shares, 0.3 times the current daily 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 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. 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. LUFK has a low gross profit margin of 24.4%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. LUFK's operating margin of 8.6% and net margin of 6.3% are low relative to its gross margin.
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. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. The capitalizion ratio of 28.1% is on the low end. Investors generally consider a company with low debt and high equity levels is a good quality investment. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into the use of leverage by a company.
After rising 4.2%, Continental Resources (NYSE:CLR) is currently trading at a share price of $65.60. This morning, the company is trading a volume of 735,842 shares. The trading volume for a stock indicates the level of investor 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. CLR has a relatively high gross profit margin of 87.4%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Relative to its gross profit margin, CLR's operating profit margin of 34.3% and net profit margin of 33.2% are high.
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 debt-equity (D/E) ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. The D/E ratio for CLR is 80%. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
Occidental Petroleum (NYSE:OXY) is up 4% to reach a current price of $84.14 per share. The company's volume is currently 2.2 million shares for the day, 0.3 times the average volume over the last three months. Volume indicates the level of interest that investors have in a company at its current price. 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. OXY's gross profit margin is 67.9%. Investors in growth stocks or short-term traders may be less interested in the operating margin ratio. Operating profit margin for OXY is 34.9%. 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. The company has a net profit margin of 27.7%.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. There are generally two price/earnings ratios calculated: the first, called the trailing Price/Earnings ratio, is calculated using the previous years actual earnings; the second, called forward Price/Earnings ratio, is calculated using the next year's estimated earnings. The P/E ratio for OXY is 9.6, above the industry average of 7.8. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: Profit With The Power Of Price-To-Earnings
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. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.