The market is doing well so far today. The Nasdaq is up 1.1%; the S&P 500 has climbed 0.3%; and the Dow has moved up 0.3%. The capital goods sector is the category of stocks related to the manufacture or distribution of goods. The sector is diverse, containing companies that manufacture machinery used to create capital goods, electrical equipment, aerospace and defense, engineering and construction projects. It is also referred to as the "industrials sector". Performance in the capital goods sector is sensitive to fluctuations in the business cycle. Because it relies heavily on manufacturing, the sector does well when the economy is booming or expanding. As economic conditions worsen, the demand for capital goods drops off, usually lowering the prices of stocks in the sector.
Underperforming the market overall, the Capital Goods sector (XLI) is up 0.4%, and these are its current biggest movers:
|Company||Market Cap||Percentage Change|
|NVR, Inc. (NYSE:NVR)||$4.39 billion||-9.6%|
|Louisiana-Pacific Corporation (NYSE:LPX)||$1.56 billion||-5.6%|
|Quanta Services Inc (NYSE:PWR)||$4.91 billion||-4%|
|Dycom Industries, Inc. (NYSE:DY)||$591.7 million||-3.7%|
|James Hardie Industries SE (ADR) (NYSE:JHX)||$3.74 billion||+3.6%|
|Rockwell Collins (NYSE:COL)||$7.09 billion||+3.4%|
|Makita Corporation (ADR) (Nasdaq:MKTAY)||$4.54 billion||+3.3%|
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Slipping 9.6%, NVR (NYSE:NVR) is currently trading at $783.30 per share. With 96,163 shares changing hands so far today, the company's volume is 3.4 times its average over the past three months. If a stock is trading on low volume, then there is not much interest in the stock. On the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock. Margin ratios highlight companies that are worth further examination. NVR has a low gross profit margin of 18.5%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. NVR has an operating profit margin of 5.2% and a net profit margin of 4.9%, both low compared to its gross profit margin.
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. The price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. NVR's P/S ratio of 1.34 is on the high side. 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.
Louisiana-Pacific (NYSE:LPX) has fallen 5.6% and is currently trading at $10.74 per share. So far today, 1.8 million shares of the company's stock have changed hands. This is less trading activity than there was yesterday. Volume is an important indicator because it indicates how significant a price shift 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. LPX has a low gross profit margin of 9%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. Compared with its gross profit margin, LPX's operating profit margin of -0.6% and net profit margin of -12.2% are low.
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/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. LPX's stock is trading for more than its book value with a P/B ratio of 1.48. 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. P/B has its shortcomings but is still widely used as a valuation metric, more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks; book value does not carry much meaning for service-based firms with few tangible assets. SEE: Investment Valuation Ratios: Price/Book Value Ratio
Quanta Services Inc (NYSE:PWR) is trading at $22.56 per share, down 4%. The company's volume is currently 1.1 million shares for the day, 0.8 times the current daily average. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. PWR has a low gross profit margin of 16.6%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Operating margin for PWR is 5.6% and net margin is 3.8%, both low relative to its gross margin.
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 P/E ratio has been used for ages by analysts and still remains one of the most relevant pieces of stock valuation. PWR has a P/E ratio of 25.3, high compared to the industry average of 12.12. Usually, if a stock has a high P/E ratio, it indicates that the market expects the company to grow earnings quickly in the future. 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: How To Find P/E And PEG Ratios
At $16.95, Dycom Industries (NYSE:DY) has slipped 3.7%. So far today, the company's volume is 390,828 shares. 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. 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. DY has a low gross profit margin of 19.4%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. DY has an operating profit margin of 4.1% and a net profit margin of 3.3%, both low compared to its gross profit margin.
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. Using price/earnings ratios (P/E ratios) does not give an indication of whether or not an individual company's ratio is reasonable, a shortcoming that can be corrected by using the price/earnings to growth ratio (PEG ratio). DY's PEG ratio of 1.17 is in line with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
James Hardie Industries SE (NYSE:JHX) has increased to a share price of $44.47, a 3.6% rise. The company's volume for the day so far is 5,860 share, two times the current three-month 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. 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. JHX has a negative operating margin of -2.4%. In other words, the company reported a net operating loss in the most recent quarter.
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. 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. JHX's debt ratio of 94.5% 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.
Rockwell (NYSE:COL) has risen 3.4% to hit a current price of $50.56 per share. The company's volume is currently 405,399 shares. Trading activity is down from yesterday when 933,582 shares changed hands. If a stock price moves on high volume, this means that the change is a significant one. 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. COL's gross profit margin is 32.3%. Compared with its gross profit margin, COL's operating profit margin of 87.6% and net profit margin of 13.2% are low.
Valuation ratios allow the investor to make a quick determination as to a company's investment value. For investors primarily interested in the income a stock can generate, the dividend yield is an important determinant of how attractive a stock is. Dividend yield for COL is 2.5%. A higher dividend yield may indicate a risk of a fall in the price of the security, or a cut in the level of dividend payments, either of which would have the effect of dropping future returns. SEE: Due Diligence On Dividends
After an increase of 3.3%, Makita Corporation (Nasdaq:MKTAY) has reached a current price of $34.07. At 2,860 shares, the company's volume so far today is 0.4 times the average daily volume. 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. Understanding investment valuation ratios allows the investor to assess the true value of an individual 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 MKTAY is 1.53, which is relatively high. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. 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.
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.