The market is having a bad day so far. The Nasdaq is trading down 0.1%; the S&P 500 has decreased 0.2%; and the Dow has slipped 0.2%. The healthcare sector is the category of stocks relating to medical and healthcare goods or services. This sector includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products. Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations.
The Healthcare sector (XLV) is currently lagging behind the overall market, down 0.2%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Select Medical Holdings Corporation (NYSE:SEM)||$1.94 billion||-21.7%|
|Amarin Corporation plc (ADR) (Nasdaq:AMRN)||$1.56 billion||+17.3%|
|Genomic Health, Inc. (Nasdaq:GHDX)||$941.5 million||+13%|
|Seattle Genetics, Inc. (Nasdaq:SGEN)||$2.79 billion||+5.2%|
|Medicis Pharmaceutical Corp (NYSE:MRX)||$1.98 billion||-4.9%|
|Endo Pharmaceuticals Holdings Inc (Nasdaq:ENDP)||$3.57 billion||+3.7%|
|Cyberonics, Inc. (Nasdaq:CYBX)||$1.22 billion||+3.3%|
Broker Summary: E-Trade Financial
After a precipitous drop of 21.7%, Select Medical (NYSE:SEM) is now trading at a share price of $10.75. The company's volume is currently 1.5 million shares for the day, 3.1 times its average over the past three months. If a stock price moves on high volume, this means that the change is a significant one. 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 price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. SEM's P/B ratio of 1.74 shows that its share price is higher than its book value. 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: Using The Price-To-Book Ratio To Evaluate Companies
Amarin Corporation plc (Nasdaq:AMRN) rose a significant 17.3% to reach $13.30 per share. The company's volume for the day so far is 7.7 million shares. This is greater than yesterday's volume of 3.9 million shares. A stock's volume conveys how excited investors are about it. 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. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. AMRN's P/E ratio of 6.8 falls below the industry average of 11.52. A low P/E ratio may indicate that the market expects relatively slower earnings growth. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: How To Find P/E And PEG Ratios
Genomic Health (Nasdaq:GHDX) has soared 13% to reach a current price of $35.40 per share. So far today, the company's volume is 427,843 shares, 3.1 times the average daily volume. High volume indicates a lot of investor interest while low volume indicates the opposite. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The price/sales ratio measures a company's stock market price by its revenues. GHDX's P/S ratio of 4.28 is on the high side. This could be a good sign if the share price increases. 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.
Rising 5.2%, Seattle Genetics (Nasdaq:SGEN) is currently trading at $25.10 per share. The company is currently trading a volume of 2.1 million shares. In technical analysis, trading volume is used to determine the strength of a market indicator. 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 ratio is calculated by dividing total liabilities by total assets. SGEN has a low debt ratio of 46.6%. A low debt ratio means the company has more available cash flow. 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.
Medicis (NYSE:MRX) has fallen 4.9% and is currently trading at $31.68 per share. At 1.9 million shares, the company's volume so far today is 2.4 times the average volume over the last three months. Volume is used to evaluate how meaningful the price movement of a stock is. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. 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. MRX has a low debt-equity ratio of 20%. A low D/E ratio may be a sign that the company is not taking advantage of leverage to increase its profits. 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.
Endo Pharmaceuticals Holdings (Nasdaq:ENDP) is up 3.7% to reach a current price of $31.71 per share. So far today, the company's volume is 941,710 shares. This is a sign that there will be less trading activity than there was yesterday. 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. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. ENDP's capitalization ratio of 62.6% is relatively high. A company considered too highly leveraged (too much debt) may find its freedom of action restricted by its creditors and/or have its profitability hurt by high interest costs. 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.
Cyberonics (Nasdaq:CYBX) has moved up 3.3% and is currently trading at $45.67 per share. The company's volume is currently 102,043 shares for the day, 0.8 times the average daily volume. Volume is an important indicator because it indicates how significant a price shift 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. 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). CYBX's PEG ratio is 1.73. 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.
The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.