The Nasdaq is trading down 0.3%, the S&P 500 has declined 0.3% and the Dow has fallen 0.5% on a bad morning for the market.
The Oil and Gas Operations sector (DIG) is down 1.6%, underperforming the market overall. The current biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Petroleum Development Corporation (Nasdaq:PETD)||$733.8 million||+3.5%|
|InterOil Corporation (USA) (NYSE:IOC)||$3.36 billion||+3.2%|
|Cimarex Energy Co. (NYSE:XEC)||$4.72 billion||-2.6%|
|Apco Oil & Gas International Inc. (Nasdaq:APAGF)||$531.4 million||+2.6%|
|Range Resources Corp. (NYSE:RRC)||$10.03 billion||-2.4%|
|EOG Resources (NYSE:EOG)||$24.29 billion||-2.4%|
|Suburban Propane Partners, L.P. (NYSE:SPH)||$1.47 billion||+2.4%|
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After an increase of 3.5%, Petroleum (Nasdaq:PETD) has reached a current price of $25.37. With 374,585 shares changing hands so far today, the company's volume is 0.5 times its current three-month average. The trading volume for a stock indicates the level of investor interest. Margin analysis is a great way to understand the profitability of companies. The gross profit margin for PETD is 66.6%. Relative to its gross profit margin, PETD's operating profit margin of 12.5% and net profit margin of 13.8% are high.
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/book value ratio is one of the more common methods of determining whether a stock is fairly valued. The P/B ratio for PETD is 1.11, indicating that the stock is trading for more than its book value. It is important to take the company's debt into account when using the P/B ratio as debt can boost a company's liabilities to the point where they wipe out much of the book value of its hard assets, creating artificially high P/B values. A weakness of the P/B value ratio is that while the price component is easily determined by looking at the stock quote, the book value component is more difficult to estimate and more open to individual interpretation and analysis. SEE: Investment Valuation Ratios: Price/Book Value Ratio
Rising 3.2%, InterOil Corporation (NYSE:IOC) is currently trading at $71.90 per share. The company is currently trading a volume of 285,367 shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. Margin ratios highlight companies that are worth further examination. IOC has a low gross profit margin of 4.1%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. IOC's operating margin of 5.3% and net margin of 2.2% are low relative to its gross margin.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. There are generally two price/earnings ratios calculated: the first, called the trailing Price/Earnings ratio, is calculated using the previous years actual earnings; the second, called forward Price/Earnings ratio, is calculated using the next year's estimated earnings. The P/E ratio for IOC is 131.5, above the industry average of 28.86. 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
Currently trading at $53.68 per share, Cimarex (NYSE:XEC) has fallen 2.6%. At 479,896 shares, the company's volume so far today is 0.4 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. XEC has a gross profit margin of 80.8%, which is on the high end. This may indicate that the company is over-pricing its products and/or services. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. Relative to its gross profit margin, the company has a high net profit margin of 29.5%. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. 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 XEC is 39%.
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/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. XEC's P/S ratio of 3.69 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.
Apco Oil & Gas International (Nasdaq:APAGF) has risen 2.6% to hit a current price of $18.52 per share. The company's volume is currently 13,439 shares. Yesterday, 49,900 shares changed hands. Volume is an important indicator because it indicates how significant a price shift is. 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. APAGF has a gross profit margin of 68%. Operating margin can be an important ratio for some investors, particularly those investing in weaker companies or companies in cyclical industries. The operating profit margin for APAGF is 16.8%, high compared to its gross profit margin. A high operating margin indicates a high margin of safety in an investment. 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 for the company is 30.1%.
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. The debt ratio is calculated by dividing total liabilities by total assets. APAGF has a debt ratio of 12.1%, 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. 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.
Range (NYSE:RRC) has fallen 2.4% and is currently trading at $60.36 per share. The company's volume for the day so far is 911,835 share, 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. 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. RRC's gross profit margin of 75.4% is on the high side. A high gross profit margin generally means that the company can make a reasonable profit on sales, provided that overhead costs do not increase. The operating margin ratio can vary widely across industries, so investors should focus on comparing companies from similar industries or with similar business models. RRC has an operating profit margin of -21.9%. This is because the company reported a net operating loss in the most recent quarter. Net profit margins are those generated from all phases of a business, including taxes. Net margin is 3.3%, which is high relative to its gross profit margin. 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.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. The D/E ratio for RRC is 100%. 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.
Slipping 2.4%, EOG (NYSE:EOG) is currently trading at $87.93 per share. So far today, 707,192 shares have changed hands. Volume indicates the level of interest that investors have in a company at its current price. Margin analysis is a great way to understand the profitability of companies. EOG has a relatively high gross profit margin of 84.3%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Compared with its gross profit margin, EOG's operating profit margin of 19.9% and net profit margin of 11.6% are high.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. EOG's capitalization ratio is 27.8%, which is relatively low. A very low capitalization ratio might be a sign that the company is stagnating and reducing the potential earnings for shareholders. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.
Suburban Propane Partners (NYSE:SPH) is at $42.24 per share after an increase of 2.4%. At 39,889 shares, the company's volume so far today is 0.4 times its 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. SPH has a low gross profit margin of 15.1%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Relative to its gross profit margin, SPH's operating profit margin of 15.7% and net profit margin of 4.2% are low.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. Dividend yield measures the income that a stock will generate for an investor. SPH's dividend yield of 8.3% is on the high end. Companies with large dividends tend to cut them to preserve cash flow, so watch out that you don't end up with a stock that might not be worth owning. 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 The nature of the market is such that stocks will have good days and bad days. It is important to weigh current activity against historical performance when making any investment decisions. 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.