The market is on the rise this morning. The Nasdaq is up 0.3%; the S&P 500 is trading up 0.1%; and the Dow has increased 0.2%. The consumer cyclical sector is a category of stocks that relies heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections. Durable cyclicals include physical goods such as hardware or vehicles, while non-durables represent items like movies or hotel services. The performance of consumer cyclicals is highly related to the state of the economy. They represent goods and services that are not considered necessities, but luxurious purchases. During contractions or recessions, people have less disposable income to spend on consumer cyclicals. When the economy is expanding or booming, the sales of these goods rise as retail and leisure spending increase.
Despite a good day for the overall market so far, the Consumer Cyclical sector (XLY) is down 0.1% and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|LeapFrog Enterprises (NYSE:LF)||$577.1 million||+2.9%|
|Deckers (Nasdaq:DECK)||$1.67 billion||-2%|
|VF (NYSE:VFC)||$17.1 billion||+1.9%|
|Tesla Motors (Nasdaq:TSLA)||$2.98 billion||+1.8%|
|NIKE (NYSE:NKE)||$36.7 billion||-1.8%|
|Whirlpool (NYSE:WHR)||$6.24 billion||-1.6%|
|Under Armour (NYSE:UA)||$6.22 billion||-1.5%|
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After an increase of 2.9%, LeapFrog Enterprises (NYSE:LF) has reached a current price of $8.84. The company's volume is currently 911,553 shares for the day, in keeping with its current three-month average. The trading volume for a stock indicates the level of investor interest. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. LF's P/B ratio of 2.7 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. One problem with the P/B value ratio is that it can be difficult to calculate the true book value of a company, so investors should be aware that many measures of book value may provide only a rough estimate, and should be taken with a grain of salt. SEE: How Buybacks Warps The Price-To-Book Ratio
Currently trading at $44.05 per share, Deckers (Nasdaq:DECK) has fallen 2%. So far today, 260,694 shares of the company's stock have changed hands. This is a sign that there will be less trading activity than there was yesterday. 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. 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. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. The P/E ratio for DECK is 10.1, below the industry average of 29.19. A low P/E might arise due to substantial inherent risk of the firm and its operations, poor return on equity, or improper valuation of the market. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Understanding The P/E Ratio
VF (NYSE:VFC) has risen 1.9% and is currently trading at $158.55 per share. The company's volume is currently 370,065 shares for the day, 0.8 times its current daily 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 a 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. 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. 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 VFC is a high 1.41. This could be a good sign if the share price increases. 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.
Tesla Motors (Nasdaq:TSLA) has moved up 1.8% and is currently trading at $28.80 per share. So far today, 545,702 shares have changed hands. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. 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. TSLA has a debt ratio of 92%, which is on the high side. This means that the company's cash flow is significantly impacted by paying off principal and interest and that any negative change in performance or rise in interest rates could result in default. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
NIKE (NYSE:NKE) has fallen 1.8% and is currently trading at $99.01 per share. So far today, the company's volume is 1.3 million shares, 0.6 times the average volume over the last three months. Volume is used to evaluate how meaningful the price movement of a stock is. 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-equity (D/E) ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. NKE has a low debt-equity ratio of 4%. A low D/E ratio may be a sign that the company is not taking advantage of leverage to increase its profits. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
At $79.23, Whirlpool (NYSE:WHR) has slipped 1.6%. The company's volume is currently 341,337 shares. This is a sign that there will be less trading activity than 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 can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. WHR's capitalization ratio is 31.3%. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.
Under Armour (NYSE:UA) is trading at $58.59 per share, down 1.5%. At 380,803 shares, the company's volume so far today is 0.3 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. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The price/earnings to growth (PEG) ratio divides a company's P/E ratio by its growth rate of earnings-per-share. UA has a PEG ratio of 2.91. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. Daily stock performance should be weighed against historical performance and put in context of the market overall. 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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