It's been a bad day for the market after the morning's trading. The Nasdaq has decreased 0.2%; the S&P 500 is trading down 0.2%; and the Dow is down 0.5%. 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.
The Consumer Cyclical sector (XLY) is currently lagging behind the overall market, down 0.2%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Vera Bradley, Inc. (Nasdaq:VRA)||$854.4 million||-7.1%|
|Navistar International Corporation (NYSE:NAV)||$1.94 billion||-5.8%|
|Tempur-Pedic International Inc. (NYSE:TPX)||$1.49 billion||-4.4%|
|Under Armour Inc (NYSE:UA)||$4.93 billion||-3.6%|
|The Jones Group Inc. (NYSE:JNY)||$785 million||+3.6%|
|Columbia Sportswear Company (Nasdaq:COLM)||$1.81 billion||-3%|
|Visteon Corporation (NYSE:VC)||$1.97 billion||-2.9%|
Broker Summary: Fidelity Online Brokerage
Vera Bradley (Nasdaq:VRA) is currently trading at a share price of $19.58, a 7.1% decline. So far today, the company's volume is 772,082 shares. This is greater than yesterday's volume of 725,117 shares. A stock's volume conveys how excited investors are about it. 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. VRA's gross profit margin is 57.9%. The operating margin ratio can vary widely across industries, so investors should focus on comparing companies from similar industries or with similar business models. VRA's operating profit margin is 17.8%. Net profit margin is calculated by dividing net income by sales; the higher the net profit margin, the better. The company's net profit margin is 12.4%.
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. A price/sales ratio is derived by dividing stock market price by company sales. The P/S ratio for VRA is 2.21, 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.
Slipping 5.8%, Navistar (NYSE:NAV) is currently trading at $26.72 per share. So far today, the company's volume is 698,960 shares, 0.2 times the current three-month average. If a stock price makes a big move up or down, volume lets us know the significance of that move. 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. NAV has a low gross profit margin of 18.4%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. The operating margin ratio can also be useful for tracking an individual company's performance across time, where an increasing ratio is good and a declining ratio may provide cause for concern that a company's business model is weakening. Operating margin for NAV is -6.9%. In other words, the company reported a net operating loss in the most recent quarter. Net profit margin compares net income with sales. The company's net margin is 9.4%, which is low compared to its gross margin. A company with a low or negative net profit margin can potentially increase its profitability by taking steps to reduce costs and increase sales.
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 easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. NAV has a high debt ratio of 104%. 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. 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.
After a decline of 4.4%, Tempur-Pedic International (NYSE:TPX) has hit a share price of $22.35. This morning, the company is trading a volume of 506,878 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. 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. The gross profit margin for TPX is 56.4%. The operating profit margin indicates how much EBIT is generated per dollar of sales. Operating profit margin for TPX is 22.4%. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. The company has a net profit margin of 15.4%.
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 debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. TPX has a D/E ratio of 563%, which is relatively high. Generally, a high D/E ratio means that the company may have difficulty generating enough cash to pay off its debts. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
Under Armour (NYSE:UA) is trading at $91.07 per share, down 3.6%. The company's volume is currently 640,140 shares for the day, 0.5 times the current daily average. 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. UA has a gross profit margin of 50.6%. Investors in growth stocks or short-term traders may be less interested in the operating margin ratio. UA's operating profit margin is 6.3%. Net profit margins are those generated from all phases of a business, including taxes. Net profit margin for the company is 6.4%.
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 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. UA has a low capitalization ratio of 4.6%. A low capitalization ratio can signify a failure to leverage equity into investment, missing valuable opportunities for growth and expansion. 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.
Jones Group (NYSE:JNY) has risen 3.6% and is currently trading at $9.90 per share. So far today, 524,745 shares of the company's stock have changed hands. Yesterday, 996,453 shares changed hands. Volume indicates the level of interest that investors have in a company at its current price. Margin ratios highlight companies that are worth further examination. The gross profit margin for JNY is 38.8%. Investors trying to assess a company's ability to continue to pay its fixed expenses even if its business declines may want to evaluate the operating margin ratio. JNY has an operating profit margin of 4.3%. While ratios such as price/earnings (P/E) or price/book value look at the relative attractiveness of a stock, the net profit margin ratio focuses on company performance rather that stock market valuation. Net margin is 0.7%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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 JNY is 2.1%. To calculate the dividend yield, divide the level of dividends by the stock price; the higher the yield, the more attractive the security. SEE: Due Diligence On Dividends
Falling 3%, Columbia Sportswear (Nasdaq:COLM) is currently at a share price of $52.03. The company's volume for the day so far is 45,767 share, 0.2 times its average over the past three months. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. COLM's gross profit margin is 45.9%. Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings. COLM's operating profit margin is 1.6%. Comparing net profit margins for companies with similar business models or in similar industries can yield valuable information as to which business is actually performing better. The company has a net profit margin of 5.6%.
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 price/earnings to growth (PEG) ratio compares a company's P/E ratio to its earnings-per-share growth rate, which tells you whether or not you are a good value when purchasing a stock with a high price/earnings ratio (P/E ratio). PEG ratio for COLM is consistent with the industry average at 1.46. 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.
Currently trading at $36.40 per share, Visteon (NYSE:VC) has fallen 2.9%. The company's volume for the day so far is 105,049 shares. High volume indicates a lot of investor interest while low volume indicates the opposite. Profit-margin ratios can give investors deeper insight into management efficiency than earnings alone can provide. Gross profit margin, operating profit margin and net margin are commonly used margins. VC has a low gross profit margin of 12%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. Relative to its gross profit margin, VC's operating profit margin of -1.2% and net profit margin of 0.4% are low.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. The price/book value ratio is especially important for value investors as it can provide an indication of the true value of a company's assets at a time when its business model may be failing. VC's P/B ratio of 1.37 shows that its share price is higher than its book value. This may be a sign that the company is overvalued. P/B value ratios are particularly useful to value investors, distressed or "vulture" investors, or any other investors purchasing beaten-down securities but are less useful to investors focused on growth stocks, purchasing IPOs, or investing in technology or other "asset-lite" companies. SEE: Using The Price-To-Book Ratio To Evaluate Companies
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. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.