The market is on the rise this morning. The Nasdaq has increased 0.6%; the S&P 500 has moved up 0.4%; and the Dow has risen 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 0.8% and its biggest movers so far today are:
|Company||Market Cap||Percentage Change|
|Ocwen (NYSE:OCN)||$3.91 billion||+16.5%|
|Altisource Portfolio Solutions (Nasdaq:ASPS)||$2.06 billion||+13.6%|
|Nationstar Mortgage Holdings (NYSE:NSM)||$3.09 billion||+6.6%|
|Msci (NYSE:MSCI)||$3.19 billion||+4.8%|
|Acacia (Nasdaq:ACTG)||$1.32 billion||-2.6%|
|Epoch (Nasdaq:EPHC)||$565.2 million||-2.1%|
|MarketAxess Holdings (Nasdaq:MKTX)||$1.18 billion||-2%|
Software Summary: Finviz.com Stock Screener
Ocwen (NYSE:OCN) is trading at $33.75 per share, a significant rise of 16.5%. So far today, 5.1 million shares have changed hands. If a stock price moves on high volume, this means that the change is a significant one. 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. 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. Compared to the industry average of 10.87, OCN's P/E ratio of 40.2 is quite high. This could mean that the market is expecting big things over the next few months or years. High P/E stocks could be "growth" stocks, while low PE stocks may be "value" stocks. SEE: Understanding The P/E Ratio
Altisource Portfolio Solutions (Nasdaq:ASPS) has soared 13.6% to reach a current price of $99.99 per share. The company's volume for the day so far is 436,473 shares, 3.7 times the current three-month average. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. 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. PEG ratio for ASPS is 1.15. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
Nationstar Mortgage Holdings (NYSE:NSM) has moved up 6.6% and is currently trading at $36.96 per share. The company's volume for the day so far is 1.4 million 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. Valuation ratios allow the investor to make a quick determination as to a company's investment value. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. NSM has a debt ratio of 87.1%, which is on the high side. 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.
Msci (NYSE:MSCI) has risen 4.8% to hit a current price of $27.46 per share. At 2.5 million shares, the company's volume so far today is 1.2 times the average daily volume. 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. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. 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. MSCI has a D/E ratio of 62%. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.
After a decline of 2.6%, Acacia (Nasdaq:ACTG) has hit a share price of $25.89. The company's volume for the day so far is 171,834 shares. 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 a 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. Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm. ACTG has a P/B ratio of 2.08 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. One problem with the P/B value ratio is that it can be difficult to calculate the true book value of a company, so investors should be aware that many measures of book value may provide only a rough estimate, and should be taken with a grain of salt. SEE: Investment Valuation Ratios: Price/Book Value Ratio
Epoch (Nasdaq:EPHC) has decreased to $23.36 per share, a 2.1% fall. At 16,018 shares, the company's volume so far today is 0.3 times the average volume over the last three months. 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. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). EPHC has a P/E ratio of 22.7, high compared to the industry average of 13.23. 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: Can Investors Trust the P/E Ratio?
MarketAxess Holdings (Nasdaq:MKTX) is currently trading at a share price of $31.13, a 2% decline. The company's volume is currently 57,729 shares. This is a sign that there will be less trading activity than there was yesterday. Volume indicates the level of interest that investors have in a company at its current price. 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 price/earnings to growth (PEG) ratio can reveal value what price/earnings (P/E) ratios alone may not so that if a company has a high P/E ratio (an indication that its stock is overpriced) but its earnings are growing very quickly, the PEG ratio may reveal that the company is actually fairly valued, or perhaps even a bargain. MKTX's PEG ratio of 1.61 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.
The Bottom Line The nature of the market is such that stocks will have good days and bad days. 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.