This morning's trading has marked a bad day for the market so far. The Nasdaq has decreased 0.2%; the S&P 500 is down 0.4%; and the Dow has fallen 0.5%. 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 0.4%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Disco (NYSE:DFS)||$19.05 billion||+4%|
|Nationstar Mortgage Holdings (NYSE:NSM)||$2.42 billion||-3.4%|
|Eaton (NYSE:EV)||$3.15 billion||-3.1%|
|Fifth Third (Nasdaq:FITB)||$13.22 billion||+2.5%|
|Health Net (NYSE:HNT)||$1.76 billion||+2.4%|
|Enstar (Nasdaq:ESGR)||$1.58 billion||-2.2%|
|Texas Capital Bancshares (Nasdaq:TCBI)||$1.71 billion||-1.9%|
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After rising 4%, Disco (NYSE:DFS) is currently trading at a share price of $38.47. This morning, the company is trading a volume of 4.5 million shares. High volume indicates a lot of investor interest while low volume indicates the opposite. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. DFS has a P/E ratio of 8.6, in line with the industry average. To determine the P/E ratio, an investor divides the market price of the stock by the earnings-per-share (EPS) of the stock. SEE: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock
Currently trading at $26.23 per share, Nationstar Mortgage Holdings (NYSE:NSM) has fallen 3.4%. So far today, the company's volume is 238,657 shares, 0.3 times the current three-month average. 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 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. 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. NSM's P/B ratio of 3.69 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. 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
Eaton (NYSE:EV) is down 3.1% to reach $26.44 per share. So far today, the company's volume is 1.1 million shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The dividend yield is calculated by dividing a company's dividends per share by its stock price. EV's dividend yield is 2.8%. It is important to remember that while a higher dividend yield is more attractive, all else being equal, a higher dividend yield can also indicate greater perceived risk. SEE: Investment Valuation Ratios: Dividend Yield
Increasing 2.5%, Fifth Third (Nasdaq:FITB) is trading at $14.75 per share. The company's volume is currently 12.2 million shares for the day, 1.7 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. 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. 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 FITB is a high 1.8. 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.
Health Net (NYSE:HNT) is at $22.11 per share after an increase of 2.4%. The company's volume for the day so far is 626,448 shares. Volume is used to evaluate how meaningful the price movement of a stock is. 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/earnings to growth (PEG) ratio divides a company's P/E ratio by its growth rate of earnings-per-share. HNT's PEG ratio of 0.96 is in line 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.
Enstar (Nasdaq:ESGR) is trading at $93.35 per share, down 2.2%. The company's volume is currently 26,089 shares for the day, 2.2 times its current three-month average. Volume indicates the level of interest that investors have in a company at its current price. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. 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. ESGR has a high debt ratio of 76.2%. As such, the company is highly leveraged and not highly liquid. 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.
Texas Capital Bancshares (Nasdaq:TCBI) is currently trading at a share price of $44.10, a 1.9% decline. The company's volume is currently 93,441 shares. At this rate, trading activity will likely be down from yesterday when 370,890 shares changed hands. 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. 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. TCBI's P/E ratio of 16.2 is consistent with the industry average. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: Understanding The P/E Ratio
The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. It is important to weigh current activity against historical performance when making any investment decisions. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.