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Tickers in this Article: CAVM, CREE, ASML, FEIC, KLAC, HITT, VECO
It's been a good morning for the market. The Nasdaq has climbed 1.2%; the S&P 500 has increased 0.6%; and the Dow is up 0.7%.

The Semiconductors sector (XLK) is up 1.4%, outperforming the market overall. The biggest movers in the sector so far are:
CompanyMarket CapPercentage Change
Cavium Inc (Nasdaq:CAVM).15 billion+7%
Cree, Inc. (Nasdaq:CREE).7 billion+5.5%
ASML Holding N.V. (ADR) (Nasdaq:ASML).21 billion+5.3%
FEI Company (Nasdaq:FEIC).78 billion+4.5%
KLA-Tencor (Nasdaq:KLAC).7 billion+4.3%
Hittite Microwave Corp (Nasdaq:HITT).49 billion+4.2%
Veeco Instruments Inc. (Nasdaq:VECO).26 billion+3.9%
Broker Summary: TD Ameritrade Thinkorswim

After rising 7%, Cavium (Nasdaq:CAVM) is currently trading at a share price of $24.77. The company is currently trading a volume of 326,048 shares. Volume is used to evaluate how meaningful the price movement of a stock is. 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 CAVM is 56.7%. Both CAVM's operating and net profit margins are negative. This is because the company reported net and operating losses in the most recent quarter.

When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. One of the favorite tools of many value investors is analyzing price/book value ratios, as it provides a measure of the underlying value of a company's assets as compared to the valuation of its equity. CAVM has a P/B ratio of 4.01 which shows that its share price is higher than its book value. This may be a sign that the company is overvalued. P/B value comparisons should be made among companies in the same industry rather than across industries. SEE: Investment Valuation Ratios: Price/Book Value Ratio

Cree (Nasdaq:CREE) is up 5.5% to reach a current price of $24.52 per share. The company's volume for the day so far is 934,009 share, 0.6 times its current three-month average. If a stock price moves on high volume, this means that the change is a significant one. 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. CREE has a gross profit margin of 47.1%. Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings. CREE's operating profit margin is 1.8%. While ratios such as price/earnings (P/E) or price/book value look at the relative attractiveness of a stock, the net profit margin ratio focuses on company performance rather that stock market valuation. Net margin is 4.9%.

Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The price/sales ratio measures a company's stock market price by its revenues. The P/S ratio for CREE is a high 3.34. 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.

ASML Holding N.V (Nasdaq:ASML) has increased to a share price of $54.25, a 5.3% rise. The company's volume for the morning is 1.5 million shares. This is 0.6 times its average daily volume. Volume is an important indicator because it indicates how significant a price shift is. 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 ASML is 45.8%. ASML's operating margin of 25.8% and net margin of 24.9% are low relative to its gross margin.

Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. ASML's debt ratio is 51.2%. 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.

Increasing 4.5%, FEI (Nasdaq:FEIC) is trading at $48.90 per share. This morning, 55,422 shares have been traded, which is less activity than yesterday's volume of 322,090 shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. There are many tools investors can use to evaluate a stock, including margins. Margins, quite simply, are earnings expressed as a ratio, or a percentage of sales, and this allows investors to compare the profitability of different companies, while net earnings, which are presented as an absolute number, cannot. FEIC has a gross profit margin of 47.4%. 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). Operating profit margin for FEIC is 15.7%. 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 12.6%.

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 leverage ratio. FEIC has a debt-equity ratio of 12%, which is on the low side. This shows that the company's assets are financed primarily through equity. 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.

Rising 4.3%, KLA-Tencor (Nasdaq:KLAC) is currently trading at $48 per share. So far today, 1.1 million shares have changed hands. High volume indicates a lot of investor interest while low volume indicates the opposite. Margin ratios highlight companies that are worth further examination. The gross profit margin for KLAC is 61.1%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. KLAC's operating profit margin is 33.8%. Comparing net profit margins for companies with similar business models or in similar industries can yield valuable information as to which business is actually performing better. The company's net profit margin is 23.7%.

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. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. KLAC's P/E ratio of 10.3 is under the industry average of 14.53. A low P/E ratio may indicate that the market expects relatively slower earnings growth. 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

Hittite (Nasdaq:HITT) has moved up 4.2% and is currently trading at $49.35 per share. The company's volume is currently 23,850 shares for the day, 0.2 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. Margin analysis is a great way to understand the profitability of companies. HITT has a high gross profit margin of 78.2%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. The operating profit margin is a rough measure of the operating leverage a company can achieve in the conduct of the operational part of its business. Operating profit margin for HITT is 40.2%. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. The company has a net profit margin of 30.9%.

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. Using price/earnings ratios (P/E ratios) does not give an indication of whether or not an individual company's ratio is reasonable, a shortcoming that can be corrected by using the price/earnings to growth ratio (PEG ratio). HITT's PEG ratio is 1.49. 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.

After an increase of 3.9%, Veeco Instruments (Nasdaq:VECO) has reached a current price of $33.59. So far this morning, 254,256 shares have changed hands. This is 0.5 times the average daily volume. A stock's volume conveys how excited investors are about it. 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 VECO is 43.2%. Investors trying to assess a company's ability to continue to pay its fixed expenses even if its business declines may want to evaluate the operating margin ratio. VECO has an operating profit margin of 15%. Net profit margin compares net income with sales. Net margin is 10.6%.

Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. The P/B ratio for VECO is 1.67, 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: Using The Price-To-Book Ratio To Evaluate Companies

The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. 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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