This morning's trading has marked a bad day for the market so far. The Nasdaq has declined 0.2%; the S&P 500 is trading down 0.5%; and the Dow has fallen 0.6%. The financial sector is the category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate. Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop. Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.
The Financial sector (XLF) is down 0.2%, underperforming the market overall. The current biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Nationstar Mortgage Holdings Inc (NYSE:NSM)||$2.15 billion||-8.3%|
|StanCorp Financial Group, Inc. (NYSE:SFG)||$1.39 billion||-4.6%|
|Signature Bank (Nasdaq:SBNY)||$2.7 billion||+3.8%|
|Itau Unibanco Holding SA (ADR) (NYSE:ITUB)||$64.16 billion||+3.2%|
|Carlyle Group LP (Nasdaq:CG)||$6.98 billion||+2.5%|
|Molina Healthcare, Inc. (NYSE:MOH)||$1.22 billion||+2.1%|
|Chemical Financial Corporation (Nasdaq:CHFC)||$601.5 million||+2.1%|
After a decline of 8.3%, Nationstar Mortgage Holdings (NYSE:NSM) has hit a share price of $22.16. So far today, the company's volume is 741,854 shares, 1.5 times the current three-month average. If a stock price moves on high volume, this means that the change is a significant one. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. NSM's stock is trading for more than its book value with a P/B ratio of 3.33. This may be a sign that the company is overvalued. 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: How Buybacks Warps The Price-To-Book Ratio
StanCorp Financial Group (NYSE:SFG) has fallen 4.6% and is currently trading at $29.86 per share. The company is currently trading a volume of 503,231 shares. Volume is used to evaluate how meaningful the price movement of a stock is. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). SFG's P/E ratio of 9.9 falls below the industry average of 11.81. 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. A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: Investment Valuation Ratios: Price/Earnings Ratio
After rising 3.8%, Signature (Nasdaq:SBNY) is currently trading at a share price of $60.28. This morning, 268,254 shares have been traded,. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. SBNY's P/S ratio of 4.56 is on the high side. 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.
Itau Unibanco Holding SA (NYSE:ITUB) has moved up 3.2% and is currently trading at $14.68 per share. The company's volume for the morning is eight million shares. This is 0.6 times its current daily average. If a stock price makes a big move up or down, volume lets us know the significance of that move. Valuation ratios allow the investor to make a quick determination as to a company's investment value. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. ITUB's debt ratio of 90.9% is fairly high. This means that most of the company's assets are financed through debt. 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.
Carlyle (Nasdaq:CG) has risen 2.5% and is currently trading at $23.50 per share. With 60,818 shares changing hands so far today, the company's volume is in keeping with its current three-month 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. Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. CG's P/B ratio of 7.63 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. 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
Molina Healthcare (NYSE:MOH) is up 2.1% to reach a current price of $26.81 per share. The company's volume for the day so far is 90,004 shares. 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. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. The P/E ratio has been used for ages by analysts and still remains one of the most relevant pieces of stock valuation. MOH's P/E ratio of 56.1 is above the industry average of 12.58. 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: How To Find P/E And PEG Ratios
After an increase of 2.1%, Chemical (Nasdaq:CHFC) has reached a current price of $22.34. So far today, the company's volume is 9,386 shares, which is likely to result in less activity than yesterday's volume of 39,888 shares. Volume indicates the level of interest that investors have in a company at its current price. Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. 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. CHFC has a high P/S ratio of 2.47. 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.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. 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.