So far today, the Nasdaq has moved up 0.3%, the S&P 500 is trading down 0.2% and the Dow has declined 0.1%. 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) has increased 0.4% so far today and here are its biggest movers:
|Company||Market Cap||Percentage Change|
|OraSure Technologies, Inc. (Nasdaq:OSUR)||$583 million||+11.2%|
|Arena Pharmaceuticals, Inc. (Nasdaq:ARNA)||$1.98 billion||+9.6%|
|Spectrum Pharmaceuticals, Inc. (Nasdaq:SPPI)||$937.5 million||+5.2%|
|Dr. Reddy\'s Laboratories Limited (ADR) (NYSE:RDY)||$5.24 billion||-4%|
|WuXi PharmaTech (Cayman) Inc. (ADR) (NYSE:WX)||$996.2 million||+3.4%|
|Life Technologies (Nasdaq:LIFE)||$7.94 billion||-2.7%|
|Sanofi SA (ADR) (NYSE:SNY)||$103.28 billion||-2.7%|
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OraSure Technologies (Nasdaq:OSUR) is trading at $13.45 per share, a significant rise of 11.2%. With four million shares changing hands so far today, the company's volume is 12 times the average volume over the last three months. 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. OSUR has a gross profit margin of 63.4%. Both OSUR's operating and net profit margins are negative. This is because the company reported net and operating losses in the most recent quarter.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. The debt-equity ratio of 7% is relatively low. This shows that the company's assets are financed primarily through equity. 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.
After an increase of 9.6%, Arena Pharmaceuticals (Nasdaq:ARNA) has reached a current price of $10.98. So far today, 16.3 million shares have changed hands. A stock's volume conveys how excited investors are about it. Margin ratios highlight companies that are worth further examination. ARNA's operating profit margin is -895.5%. This shows that the company reported a net operating loss in the most recent quarter.
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 price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. The P/B ratio for ARNA is 47.74, indicating that the stock is trading for more 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. 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
Increasing 5.2%, Spectrum Pharmaceuticals (Nasdaq:SPPI) is trading at $16.57 per share. At one million shares, the company's volume so far today is 0.5 times the current daily average. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. SPPI has a relatively high gross profit margin of 78.1%. 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. Operating margin provides a measure of a company's ability to pay its fixed costs such as interest on debt, particular if its business were to decline in the future. SPPI has an operating profit margin of 38.6%. 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 39.3%.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. A price/sales ratio is derived by dividing stock market price by company sales. The P/S ratio for SPPI is a high 3.59. 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 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.
Dr. Reddy's Laboratories Limited (NYSE:RDY) is currently trading at a share price of $29.71, a 4% decline. The company is trading at a volume of 114,028 shares. This is less trading activity than there was yesterday. If a stock price moves on high volume, this means that the change is a significant one. 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 price/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). Compared to the industry average of 12.32, RDY's P/E ratio of 18.8 is quite high. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. 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: The P/E Ratio: A Good Market-Timing Indicator
WuXi PharmaTech (Cayman) Inc (NYSE:WX) has increased to a share price of $14.51, a 3.4% rise. The company's volume for the day so far is 80,810 share, 0.4 times the current three-month 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 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. WX has a gross profit margin of 37.9%. WX has an operating profit margin of 17.5% and a net profit margin of 19.4%, both low compared to its gross profit 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 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. WX has a low capitalization ratio of 1.5%. Investors generally consider a company with low debt and high equity levels is a good quality investment. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
Life Technologies (Nasdaq:LIFE) is trading at $43.24 per share, down 2.7%. This morning, the company is trading a volume of 728,444 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 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. LIFE's gross profit margin is 67.7%. Net profit margin is a good ratio for determining how a company is performing. Relative to its gross profit margin, the company has a high net profit margin of 10.9%. A high net profit margin means a company is able to control its costs that buy goods and services at prices significantly higher than it costs to produce or provide them. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. LIFE's operating profit margin is 21%.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. LIFE's D/E ratio is 54%. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
At $37.21, Sanofi SA (NYSE:SNY) has slipped 2.7%. So far today, the company's volume is 1.1 million shares, 0.3 times the average daily volume. 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. 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. SNY's gross profit margin of 75.3% is fairly high. A high gross profit margin generally means that the company can make a reasonable profit on sales, provided that overhead costs do not increase. Relative to its gross profit margin, SNY's operating profit margin of 9.7% and net profit margin of 16.2% are high.
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. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. PEG ratio for SNY is 3.71. 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 No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.