It's been a good morning for the market. The Nasdaq has risen 0.1%; the S&P 500 has climbed 0.2%; and the Dow has moved up 0.3%. 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.
Outperforming the market overall, the Financial sector (XLF) is up 0.4% and its biggest movers so far today are:
|Company||Market Cap||Percentage Change|
|Nationstar Mortgage Holdings (NYSE:NSM)||$2.59 billion||+6.2%|
|Webster (NYSE:WBS)||$2.11 billion||+4%|
|American Capital Mortgage Investment (Nasdaq:MTGE)||$954.2 million||-3.7%|
|Greenhill & Co (NYSE:GHL)||$1.51 billion||+2.2%|
|Republic Bancorp, Inc (Nasdaq:RBCAA)||$522.6 million||-2.1%|
|First Cash Financial Services (Nasdaq:FCFS)||$1.32 billion||-1.8%|
|Infinity Property and (Nasdaq:IPCC)||$718.8 million||-1.5%|
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Nationstar Mortgage Holdings (NYSE:NSM) is up 6.2% to reach a current price of $30.80 per share. This morning, the company is trading a volume of one million shares. 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. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The price/book value ratio is especially important for value investors as it can provide an indication of the true value of a company's assets at a time when its business model may be failing. The P/B ratio for NSM is 4.34, indicating that the stock is trading for more than its book value. This may be a sign that the company is overvalued. 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: Investment Valuation Ratios: Price/Book Value Ratio
Webster (NYSE:WBS) is currently trading at $24.94 per share, a 4% increase. The company's volume is currently 459,248 shares for the day, one times its current daily average. The trading volume for a stock indicates the level of investor interest. 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. When used consistently and uniformly, the price/earnings to growth (PEG) ratio is an essential tool that adds dimension to the price/earnings ratio, allows comparisons across diverse industries and is always on the lookout for value. WBS' PEG ratio of 1.59 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.
American Capital Mortgage Investment (Nasdaq:MTGE) is down 3.7% to reach $25.34 per share. The company's volume is currently 1.1 million shares. This is about the same trading activity as there was yesterday. A stock's volume conveys how excited investors are about it. 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 easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. The debt ratio for MTGE is 88.6%, which is relatively high. 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. 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.
After an increase of 2.2%, Greenhill & Co (NYSE:GHL) has reached a current price of $53.66. So far today, the company's volume is 179,817 shares, in keeping with the average volume over the past three months. Volume indicates the level of interest that investors have in a company at its current price. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. GHL's P/S ratio of 3.61 is on the high side. 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.
Republic Bancorp, Inc (Nasdaq:RBCAA) is trading at $24.41 per share, down 2.1%. The company's volume for the day so far is 15,654 shares. If a stock price makes a big move up or down, volume lets us know the significance of that move. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. A simple P/E ratio can reveal the stock's real market value and show how the valuation compares to its industry group or a benchmark like the S&P 500 Index. RBCAA has a P/E ratio of 4.9. 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 Find P/E And PEG Ratios
Slipping 1.8%, First Cash Financial Services (Nasdaq:FCFS) is currently trading at $45.16 per share. The company's volume is currently 27,086 shares for the day, 0.2 times the current daily 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. 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 capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. The capitalizion ratio of 20.4% is on the low end. A low capitalization ratio can signify a failure to leverage equity into investment, missing valuable opportunities for growth and expansion. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.
Infinity Property and (Nasdaq:IPCC) is currently trading at a share price of $60.44, a 1.5% decline. The company's volume for the day so far is 9,637 shares. At this rate, trading activity will likely be down from yesterday when 32,043 shares changed hands. In technical analysis, trading volume is used to determine the strength of a market indicator. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. For investors primarily interested in the income a stock can generate, the dividend yield is an important determinant of how attractive a stock is. IPCC has a dividend yield of 1.5%, which is fairly low. This could indicate that that the stock is overpriced or that future dividends might be higher. For income-oriented investors such as retirees, a stock with a high dividend yield may be more attractive than a stock with a low dividend yield. SEE: Dividend Yield For The Downturn
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.