The Nasdaq has risen 1.2%, the S&P 500 has moved up 0.6% and the Dow is trading up 0.7%, marking a bad morning for the market. The energy sector is the category of stocks that relate to producing or supplying energy. This sector includes companies involved in the exploration and development of oil or gas reserves, oil and gas drilling, or integrated power firms. Performance in the sector is largely driven by the supply and demand for worldwide energy. Energy producers will do very well during times of high oil and gas prices, but will earn less when the value of energy drops. Furthermore, this sector is sensitive to political events, which historically have driven changes in the price of oil.
The Energy sector (XLE) is up 0.8%, underperforming the market overall. The biggest movers in the sector are currently:
|Company||Market Cap||Percentage Change|
|Natural Resource Partners LP (NYSE:NRP)||$2.15 billion||-3.9%|
|Penn West Petroleum Ltd (USA) (NYSE:PWE)||$6.22 billion||-3.7%|
|SM Energy Co. (NYSE:SM)||$3.31 billion||+3.3%|
|Marathon Petroleum Corp (NYSE:MPC)||$15.49 billion||+3.2%|
|Rosetta Resources Inc. (Nasdaq:ROSE)||$2.22 billion||+3%|
|Helmerich & Payne, Inc. (NYSE:HP)||$4.77 billion||+2.7%|
|Atlas Resource Partners, L.P. (NYSE:ARP)||$877.6 million||-2.6%|
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At $19.53, Natural Resource (NYSE:NRP) has slipped 3.9%. At 393,126 shares, the company's volume so far today is 1.8 times the average daily volume. A stock's volume conveys how excited investors are about it. 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. NRP has a high gross profit margin of 99.8%. A high gross profit margin generally means that the company can make a reasonable profit on sales, provided that overhead costs do not increase. Net profit margins are those generated from all phases of a business, including taxes. With a net profit margin of 15.6%, the company has a high one compared to its gross profit margin. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. Operating profit gives investors an opportunity to do profit-margin comparisons between companies that do not issue a separate disclosure of their cost of goods sold figures (which are needed to do gross margin analysis). NRP has an operating profit margin of 70.6%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. The capitalization ratio for NRP is 57.3%, which is fairly high. If the company is a company is in a highly competitive business and hobbled by high debt, it will find its competitors taking advantage of its problems to grab more market share. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
Falling 3.7%, Penn West Petroleum Ltd (NYSE:PWE) is currently at a share price of $12.62. So far today, 956,483 shares have changed hands. 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. 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. PWE has a gross profit margin of 54.3%. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. PWE's operating profit margin is 12.8%. 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 profit margin for the company is 11.7%.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. The P/B ratio for PWE is 0.66 because the stock is trading for less than its book value. This is due to one of two possibilities: that the stock is being unfairly or incorrectly undervalued by investors because of some transitory circumstance and represents an attractive buying opportunity at a bargain price or that the market's low opinion and valuation of the company are correct, at least over the foreseeable future. P/B value comparisons should be made among companies in the same industry rather than across industries. SEE: Investment Valuation Ratios: Price/Book Value Ratio
SM (NYSE:SM) has risen 3.3% and is currently trading at $53.35 per share. So far today, the company's volume is 561,191 shares, lighter than yesterday's volume of 2.2 million shares. 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 analysis is a great way to understand the profitability of companies. The gross profit margin for SM is 72.5%. Relative to its gross profit margin, SM's operating profit margin of 14.9% and net profit margin of 17.5% are high.
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. The dividend yield is calculated by dividing a company's dividends per share by its stock price. SM has a low dividend yield of 0.2%. A company with a low dividend yield may be a safer investment in the long run. Simply comparing the level of dividends that two stocks pay does not give a true reflection of which security is more attractive, so investors calculate the dividend yield in order to standardize dividend payments. SEE: Dividend Yield For The Downturn
Marathon (NYSE:MPC) has increased to a share price of $46.91, a 3.2% rise. So far today, the company's volume is 1.2 million shares. This is 0.3 times the average volume over the last three months. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. MPC has a low gross profit margin of 14.1%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. MPC's operating margin of 4.7% and net margin of 3% are 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. A price/sales ratio is derived by dividing stock market price by company sales. MPC has a P/S ratio of 0.19, on the low end. Coupled with high relative strength in the previous twelve months, a low P/S ratio is one of the most potent combinations of investment criteria. 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.
Rosetta Resources (Nasdaq:ROSE) is currently trading at $43.24 per share, a 3% increase. So far today, the company's volume is 848,947 shares, 0.4 times the average daily volume. 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. ROSE has a gross profit margin of 86.5%, which is on the high end. This means that the company will have a lot of money left over to spend on other business operations, such as research and development or marketing. ROSE's operating margin of 35.4% and net margin of 24.1% are high relative to its gross margin.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. ROSE has a debt ratio of 39.4%, which is fairly low. In other words, the company is less sensitive to changes in business or interest rates since less of its cash flow is dedicated to paying off loan expenses. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Increasing 2.7%, Helmerich & Payne, Inc (NYSE:HP) is trading at $45.61 per share. This morning, the company is trading a volume of 728,872 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. 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. HP's gross profit margin is 43.7%. 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. Relative to its gross profit margin, HP's operating margin of 26.9% is on the low side. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. The company's net profit margin is 17.7%.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. HP has a low debt-equity ratio of 10%. Companies with low D/E ratios are more attractive to investors because they are better able to protect their business interests in times of decline. 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.
Atlas Resource Partners (NYSE:ARP) is trading at $26.51 per share, down 2.6%. The company's volume is currently 13,272 shares for the day, while it was 14,732 shares yesterday. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. ARP has a gross profit margin of 39.6%. Tracking net profit margin over time for a single company can be a valuable tool for seeing how a business is developing. Net profit margin is -32%. This shows that the company reported a net loss in the most recent quarter. As with other margin ratios, the operating margin is a percentage, which allows for more standardized comparison across time and among different companies of different sizes. Operating profit margin for ARP is 3.7%.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. 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. ARP has a capitalization ratio of 62.3%, which is on the high end. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's investment. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into the use of leverage by a company.
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. 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.