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Tickers in this Article: LNCR, AMLN, THRX, ARNA, PCYC, REGN, ALXN
The market is currently down, with the Nasdaq falling 0.2%, the S&P 500 down 0.2% and the Dow decreasing 0.5%. The healthcare sector is the category of stocks relating to medical and healthcare goods or services. This sector includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products. Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations.

The Healthcare sector (XLV) is down 0.1%, outperforming the market overall. Currently, the biggest movers in the sector are:
CompanyMarket CapPercentage Change
Lincare Holdings Inc. (Nasdaq:LNCR)$2.94 billion+21.4%
Amylin Pharmaceuticals, Inc. (Nasdaq:AMLN)$4.59 billion+8.9%
Theravance Inc (Nasdaq:THRX)$1.92 billion+7.6%
Arena Pharmaceuticals, Inc. (Nasdaq:ARNA)$1.97 billion-6.2%
Pharmacyclics, Inc. (Nasdaq:PCYC)$3.77 billion+4.7%
Regeneron Pharmaceuticals Inc (Nasdaq:REGN)$10.86 billion+3.5%
Alexion Pharmaceuticals, Inc. (Nasdaq:ALXN)$18.58 billion+3.4%
Broker Summary: Charles Schwab Online Brokerage

Lincare Holdings (Nasdaq:LNCR) has soared 21.4% to reach a current price of $41.31 per share. At 60.5 million shares, the company's volume so far today is 11 times the average daily volume. 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. LNCR's gross profit margin is 68.9%. LNCR has an operating profit margin of 17.2% and a net profit margin of 9.3%, both high compared to its gross profit margin.

Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). Compared to the industry average of 12.34, LNCR's P/E ratio of 17.2 is quite high. A company with a high P/E ratio will eventually have to live up to the high rating by substantially increasing its earnings, or the price will need to drop. 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

Rising 8.9%, Amylin Pharmaceuticals (Nasdaq:AMLN) is currently trading at $30.72 per share. The company's volume is currently 66.7 million shares. Yesterday, volume was only 2.1 million shares. The trading volume for a stock indicates the level of investor interest. 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. AMLN's gross profit margin of 97.5% is fairly high. 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. Both AMLN's operating and net profit margins are negative. This is because the company reported a net loss and net operating loss in the most recent quarter.

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. 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 AMLN is a high 6.22. 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.

Theravance (Nasdaq:THRX) is up 7.6% to reach a current price of $23.91 per share. So far today, the company's volume is 468,723 shares, consistent with its average over the last three months. Volume is an important indicator because it indicates how significant a price shift is. Margin analysis is a great way to understand the profitability of companies. The company has a negative net profit margin of -5.6%. This shows that the company reported a net loss in the most recent quarter.

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. 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. THRX's debt ratio of 97.2% is fairly high. This means that most of the company's assets are financed through debt. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.

Arena Pharmaceuticals (Nasdaq:ARNA) is down 6.2% to reach $9.36 per share. The company is currently trading a volume of 14.3 million shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. ARNA's operating profit margin is -895.5%. This shows that the company reported a net operating loss in the most recent quarter.

When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The debt-equity (D/E) ratio is a leverage ratio. ARNA's D/E ratio of 196% is on the high side. This shows that the company's assets are financed primarily through debt. 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.

Pharmacyclics (Nasdaq:PCYC) has increased to a share price of $57.15, a 4.7% rise. The company's volume is currently 553,132 shares for the day, 0.3 times its 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. 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. PCYC has an operating profit margin of -932.1%. This means that the company came in with a net operating loss in the most recent quarter.

It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. PCYC has a P/B ratio of 27.21 which 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 value comparisons should be made among companies in the same industry rather than across industries. SEE: How Buybacks Warps The Price-To-Book Ratio

Regeneron Pharmaceuticals (Nasdaq:REGN) has moved up 3.5% and is currently trading at $118.19 per share. So far today, 525,323 shares of the company's stock have changed hands. This is below yesterday's volume of 648,098 shares. Volume is used to evaluate how meaningful the price movement of a stock is. 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. The company's net profit margin is negative. A negative net profit margin means the company spent more money than it made.

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 price/sales ratio measures a company's stock market price by its revenues. REGN has a high P/S ratio of 19.6. 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.

After rising 3.4%, Alexion Pharmaceuticals (Nasdaq:ALXN) is currently trading at a share price of $102.64. With 825,046 shares changing hands so far today, the company's volume is 0.6 times the average volume over the last three months. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. ALXN has a relatively high gross profit margin of 88.1%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. ALXN's operating margin of 28.6% and net margin of 22.5% are high relative to its gross margin.

Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The debt ratio shows the proportion of assets that a company is financing through debt. ALXN's debt ratio of 39.9% 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.

The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. It is important to weigh current activity against historical performance when making any investment decisions. 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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