The market is doing well so far today. The Nasdaq has moved up 0.7%; the S&P 500 is up 0.7%; and the Dow has risen 0.6%. 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.
Underperforming the market overall, the Healthcare sector (XLV) is up 0.2%, and these are its current biggest movers:
|Company||Market Cap||Percentage Change|
|Theravance Inc (Nasdaq:THRX)||$2.14 billion||+7.6%|
|Acadia Healthcare Company Inc (Nasdaq:ACHC)||$742.9 million||+5.9%|
|Valeant Pharmaceuticals Int (USA) (NYSE:VRX)||$13.4 billion||+4.7%|
|Clovis Oncology Inc (Nasdaq:CLVS)||$604.9 million||-3.8%|
|Pharmacyclics, Inc. (Nasdaq:PCYC)||$4.09 billion||-3.5%|
|Dr. Reddy\'s Laboratories Limited (ADR) (NYSE:RDY)||$5.03 billion||+3.3%|
|Bristol-Myers Squibb (NYSE:BMY)||$60.89 billion||-2.5%|
Forex Broker Summary: UFXMarkets
Theravance (Nasdaq:THRX) has risen 7.6% to hit a current price of $26.59 per share. So far today, the company's volume is 340,510 shares. 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. Net profit margin is -5.6%. A negative net profit margin means the company spent more money than it made.
In making a decision about a potential or existing investment, valuation ratios are useful as a basis for seeing whether the stock price is too high, reasonable, or a bargain. 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 has a high debt ratio of 97.2%. As such, the company is highly leveraged and not highly liquid. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Acadia Healthcare Company (Nasdaq:ACHC) is currently trading at $19.44 per share, a 5.9% increase. So far today, the company's volume is 104,747 shares, 0.2 times its average over the past three months. 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. Valuation ratios allow the investor to make a quick determination as to a company's investment value. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. ACHC's D/E ratio of 305% is on the high side. Companies in capital-intensive industries usually have higher D/E ratios because they need to buy more property, plants, and equipment to operate. 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.
Valeant Pharmaceuticals Int (NYSE:VRX) is at $47.06 per share after an increase of 4.7%. The company's volume for the day so far is 826,973 shares. This is 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. Margin ratios highlight companies that are worth further examination. VRX has a gross profit margin of 71.9%. VRX has an operating profit margin of 7.2% and a net profit margin of 5.1%, both high compared to its gross profit margin.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. The capitalization ratio for VRX is 62.7%, which is fairly high. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's investment. 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.
Slipping 3.8%, Clovis Oncology (Nasdaq:CLVS) is currently trading at $22.28 per share. So far today, the company's volume is 18,716 shares, while it was 68,455 shares yesterday. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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 is one of the more common methods of determining whether a stock is fairly valued. CLVS has a P/B ratio of 5.11 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
Currently trading at $57.21 per share, Pharmacyclics (Nasdaq:PCYC) has fallen 3.5%. The company's volume for the day so far is 1.2 million shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. PCYC has a negative operating margin of -932.1%. This shows that the company reported a net operating loss in the most recent quarter.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. While measuring a price/earnings ratio (P/E ratio) is a popular valuation technique, the measure cannot be calculated for companies without earnings, so some investors analyze the price/sales ratio. The P/S ratio for PCYC is a high 23.53. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
Dr. Reddy's Laboratories Limited (NYSE:RDY) has risen 3.3% and is currently trading at $30.69 per share. With 85,450 shares changing hands so far today, the company's volume is 0.4 times the current three-month average. The trading volume for a stock indicates the level of investor interest. 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. 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. RDY has a P/E ratio of 18.0, high compared to the industry average of 12.32. 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. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: The P/E Ratio: A Good Market-Timing Indicator
Bristol-Myers (NYSE:BMY) has decreased to $35.15 per share, a 2.5% fall. So far today, the company's volume is seven million shares. This is 0.5 times its average daily volume. Volume is used to evaluate how meaningful the price movement of a stock 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. BMY's gross profit margin of 77.8% is fairly high. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. Relative to its gross profit margin, the company has a high net profit margin of 25%. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. A company's operating margin is calculated by dividing operating income by revenues. BMY's operating profit margin is 38%.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. When used consistently and uniformly, the price/earnings to growth (PEG) ratio is an essential tool that adds dimension to the price/earnings ratio, allows comparisons across diverse industries and is always on the lookout for value. BMY has a PEG ratio of 7.71. 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. Daily stock performance should be weighed against historical performance and put in context of the market overall. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.