This morning's trading has marked a bad day for the market so far. The Nasdaq has slipped 0.7%; the S&P 500 has declined 0.2%; and the Dow is trading down 0.2%. 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 down 0.3%, outperforming the market overall. Currently, the biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Tempur-Pedic International (NYSE:TPX)||$1.79 billion||-4.9%|
|Cooper Tire & Rubber (NYSE:CTB)||$1.24 billion||+4.2%|
|Michael Kors (NYSE:KORS)||$11.08 billion||-3.5%|
|PVH (NYSE:PVH)||$6.53 billion||+2.7%|
|Tesla Motors (Nasdaq:TSLA)||$3.17 billion||+2.5%|
|Select (Nasdaq:SCSS)||$1.88 billion||-2.5%|
|Nortek (Nasdaq:NTK)||$804.2 million||+2.2%|
Broker Summary: TD Ameritrade Thinkorswim
At $28.63, Tempur-Pedic International (NYSE:TPX) has slipped 4.9%. The company's volume for the day so far is 866,903 shares, 0.8 times the average volume over the last three months. Volume is an important indicator because it indicates how significant a price shift is. 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. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. TPX has a PEG ratio of 0.88, which is consistent with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
After an increase of 4.2%, Cooper Tire & Rubber (NYSE:CTB) has reached a current price of $20.78. The company is currently trading a volume of 780,305 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. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. CTB has a high debt ratio of 75.8%. 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. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Michael Kors (NYSE:KORS) is currently trading at a share price of $55.33, a 3.5% decline. So far today, the company's volume is two million shares, consistent with its current daily average. 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. 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 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. The debt-equity ratio of 5% is relatively low. 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.
PVH (NYSE:PVH) is currently trading at $95.16 per share, a 2.7% increase. The company's volume for the day so far is 580,292 shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. PVH's P/S ratio of 0.94 is fairly low. Low P/S ratios can indicate unrecognized value potential - so long as other criteria like high profit margins, low debt levels and growth prospects are in place. 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.
Tesla Motors (Nasdaq:TSLA) has risen 2.5% to hit a current price of $30.78 per share. So far today, the company's volume is 566,303 shares, 0.4 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. Understanding investment valuation ratios allows an investor to assess the true 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. The capitalization ratio for TSLA is 87.4%, which is fairly high. The company may have trouble meeting operating and debt liabilities on time and surviving adverse economic conditions. 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.
Select (Nasdaq:SCSS) is down 2.5% to reach $32.53 per share. So far today, 174,918 shares have changed hands. Volume indicates the level of interest that investors have in a company at its current price. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. SCSS has a P/B ratio of 10.84 which 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. 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: How Buybacks Warps The Price-To-Book Ratio
Nortek (Nasdaq:NTK) is at $54.25 per share after an increase of 2.2%. At 3,486 shares, the company's volume so far today is 0.1 times the current daily average. Volume is used to evaluate how meaningful the price movement of a stock is. 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 shows the proportion of assets that a company is financing through debt. NTK's debt ratio of 94.9% is fairly high. This means that most of the company's assets are financed through debt. 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.
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.