It's been a bad day for the market after the morning's trading. The Nasdaq has fallen 0.7%; the S&P 500 has slipped 0.7%; and the Dow has declined 0.8%. 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 currently lagging behind the overall market, down 1%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Acacia Research Corporation (Nasdaq:ACTG)||$1.98 billion||-13.2%|
|SLM (Nasdaq:SLM)||$7.41 billion||+5.4%|
|Virtus Investment Partners Inc (Nasdaq:VRTS)||$652.3 million||-3.6%|
|RLI Corp. (NYSE:RLI)||$1.42 billion||-3.4%|
|PNC Financial Services (NYSE:PNC)||$32.42 billion||-2.6%|
|The Blackstone Group L.P. (NYSE:BX)||$6.65 billion||+2.5%|
|National Western Life Insurance Company (Nasdaq:NWLI)||$527.2 million||-2%|
Broker Summary: Charles Schwab Online Brokerage
Taking a 13.2% hit, Acacia (Nasdaq:ACTG) is currently trading at $34.52 per share. So far today, 1.4 million shares have changed hands. A stock's volume conveys how excited investors are about it. 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. 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. ACTG has a PEG ratio of 0.64, which is consistent with the industry average. 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.
Increasing 5.4%, SLM (Nasdaq:SLM) is trading at $16.02 per share. With 5.4 million shares changing hands so far today, the company's volume is one times the average volume over the last three months. Volume is used to evaluate how meaningful the price movement of a stock is. Investment valuation ratios can be very useful in determining the value of a stock, but it is very important to keep in mind that while some financial ratios have general rules (or a broad application), in most instances it is a prudent practice to look at a company's historical performance and use peer company/industry comparisons to put any given company's ratio in perspective. 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. SLM's stock is trading for more than its book value with a P/B ratio of 1.75. This implies that investors expect management to create more value from a given set of assets and/or that the market value of the firm's assets is significantly higher than their accounting value. 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
After a decline of 3.6%, Virtus Investment Partners (Nasdaq:VRTS) has hit a share price of $80.74. The company's volume for the day so far is 7,939 shares. This is about the same trading activity as there was yesterday. If a stock price makes a big move up or down, volume lets us know the significance of that move. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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 VRTS is a high 2.98. 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.
RLI (NYSE:RLI) is down 3.4% to reach $64.75 per share. The company's volume is currently 59,582 shares for the day, 0.9 times its current daily average. 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. 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 is calculated by dividing total liabilities by total assets. RLI has a debt ratio of 69.1%, which is on the high side. This might mean that the company now has low borrowing capacity, which reduces it's financial flexibility. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Currently trading at $59.72 per share, PNC Financial (NYSE:PNC) has fallen 2.6%. So far today, the company's volume is 1.9 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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 compares the total liabilities for a company to its total shareholder equity. PNC has a debt-equity ratio of 49%, which is on the low side. Companies with low D/E ratios are more attractive to investors because they are better able to protect their business interests in times of decline. 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.
After an increase of 2.5%, Blackstone Group (NYSE:BX) has reached a current price of $13.31. At 1.5 million shares, the company's volume so far today is 0.6 times its current three-month average. The trading volume for a stock indicates the level of investor interest. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The capitalization ratio measures the debt component of the capital structure, or capitalization of a company (i.e., the sum of long-term debt liabilities and shareholder equity) to support operations and growth. BX has a high capitalization ratio of 57.4%. The company may have trouble meeting operating and debt liabilities on time and surviving adverse economic conditions. 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.
National Western Life Insurance (Nasdaq:NWLI) has fallen 2% and is currently trading at $142.10 per share. So far today, the company's volume is 1,404 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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 is one of the more common methods of determining whether a stock is fairly valued. NWLI's stock is trading for less than its book value as can be seen from it's P/B value of 0.4. This is due to one of two possibilities: that the stock is being unfairly or incorrectly undervalued by investors because of some transitory circumstance and represents an attractive buying opportunity at a bargain price or that the market's low opinion and valuation of the company are correct, at least over the foreseeable future. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: Using The Price-To-Book Ratio To Evaluate Companies
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. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.