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Tickers in this Article: EZCH, NXPI, HITT, PKE, VECO, POWI, XLNX
The market is having a bad day so far: the Nasdaq is down 1.3%; the S&P 500 has declined 0.8%; and the Dow has decreased 0.5%.

The Semiconductors sector (XLK) is currently lagging behind the overall market, down 1.3%, and its current biggest movers are:
CompanyMarket CapPercentage Change
EZchip Semiconductor Ltd. (Nasdaq:EZCH)$944.9 million-4.6%
NXP Semiconductors NV (Nasdaq:NXPI)$5.21 billion-4.5%
Hittite Microwave Corp (Nasdaq:HITT)$1.55 billion-3.3%
Park Electrochemical Corp. (NYSE:PKE)$544.9 million-3.1%
Veeco Instruments Inc. (Nasdaq:VECO)$1.35 billion-2.9%
Power Integrations, Inc. (Nasdaq:POWI)$1.02 billion-2.9%
Xilinx (Nasdaq:XLNX)$8.41 billion-2.9%
Broker Summary: Fidelity Online Brokerage

EZchip (Nasdaq:EZCH) has decreased to $32.19 per share, a 4.6% fall. This morning, 385,936 shares have been traded, lighter than yesterday's volume of 468,807 shares. Volume is an important indicator because it indicates how significant a price 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. EZCH's gross profit margin is 65.4%. A company's operating margin is calculated by dividing operating income by revenues. EZCH has an operating profit margin of 31.5%. Net profit margin is calculated by dividing net income by sales. The company's net profit margin is 17.9%.

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. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. EZCH's P/E ratio of 88.1 is above the industry average of 27.52. This could mean that the market is expecting big things over the next few months or years. A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: The P/E Ratio: A Good Market-Timing Indicator

Currently trading at $20.04 per share, NXP (Nasdaq:NXPI) has fallen 4.5%. The company is currently trading a volume of 406,577 shares. This is 0.3 times the current three-month 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. 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. The gross profit margin for NXPI is 58.8%. Operating margin for NXPI is 5.6% and net margin is 5.5%, both high relative to its gross margin.

Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. NXPI's capitalization ratio of 74.7% is relatively high. If the company is a company is in a highly competitive business and hobbled by high debt, it will find its competitors taking advantage of its problems to grab more market share. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.

Hittite (Nasdaq:HITT) is trading at $47.46 per share, down 3.3%. So far today, the company's volume is 31,009 shares, 0.3 times the current daily average. Volume indicates the level of interest that investors have in a company at its current price. Margin ratios highlight companies that are worth further examination. HITT has a relatively high gross profit margin of 78.2%. 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. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. HITT's operating profit margin is 40.2%. Net profit margin is a good tool for fundamental analysis and long-term investing but is less useful for technical analysts and short-term traders. Net margin is 30.9%.

Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. The price/earnings to growth (PEG) ratio divides a company's P/E ratio by its growth rate of earnings-per-share. HITT's PEG ratio of 1.59 is in line 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.

Park (NYSE:PKE) is currently trading at a share price of $25.38, a 3.1% decline. So far today, 12,700 shares have changed hands. A stock's volume conveys how excited investors are about it. 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. The gross profit margin for PKE is 31.3%. PKE's operating margin of 12.8% and net margin of 11.3% are low relative to its gross margin.

Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a 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. PKE's P/B ratio of 1.52 shows that its share price is higher 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. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: How Buybacks Warps The Price-To-Book Ratio

Slipping 2.9%, Veeco Instruments (Nasdaq:VECO) is currently trading at $33.65 per share. The company's volume is currently 215,361 shares for the day, while it was 368,298 shares yesterday. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. VECO has a gross profit margin of 43.2%. 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 VECO is 15%. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. The company has a net profit margin of 10.6%.

Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. While measuring a price/earnings ratio (P/E ratio) is a popular valuation technique, the measure cannot be calculated for companies without earnings, so some investors analyze the price/sales ratio. VECO's P/S ratio of 1.28 is on the high side. This could be a good sign if the share price increases. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.

After a decline of 2.9%, Power Integrations (Nasdaq:POWI) has hit a share price of $34.97. The company's volume for the day so far is 67,970 shares. This is 0.3 times its current three-month average. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. The gross profit margin for POWI is 53.3%. Operating profit gives investors an opportunity to do profit-margin comparisons between companies that do not issue a separate disclosure of their cost of goods sold figures (which are needed to do gross margin analysis). POWI's operating profit margin is 12.2%. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. Net profit margin for the company is 10.9%.

It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The debt ratio shows the proportion of assets that a company is financing through debt. POWI has a debt ratio of 15%, which is fairly low. This indicates that the company engages in conservative financing with opportunities to borrow in the future at no significant risk. 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.

At $30.95, Xilinx (Nasdaq:XLNX) has slipped 2.9%. So far today, the company's volume is 1.4 million shares, 0.6 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. 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 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. XLNX has a debt-equity ratio of 33%, which is on the low side. A low D/E ratio may be a sign that the company is not taking advantage of leverage to increase its profits. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

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.

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