Services Stocks Making Big Moves on July 12, 2012

The Nasdaq has decreased 1.3%, the S&P 500 has slipped 0.8% and the Dow is down 0.5% on a bad morning for the market.

The Services sector (IYC) is down 0.8%, outperforming the market overall. Currently, the biggest movers in the sector are:

Company	Market Cap	Percentage Change
TIM Participacoes SA (ADR) (NYSE:TSU)	$13.12 billion	-9.2%
Sears Holdings (Nasdaq:SHLD)	$6 billion	-6%
Starwood Hotels (NYSE:HOT)	$10.16 billion	-4.6%
AutoZone (NYSE:AZO)	$13.81 billion	+4%
Wynn Resorts (Nasdaq:WYNN)	$10.12 billion	-3.6%
Family Dollar Stores (NYSE:FDO)	$8.17 billion	-3.5%
United Rentals, Inc. (NYSE:URI)	$3.02 billion	+2.6%

Broker Summary: TD Ameritrade Thinkorswim

At $24.07, TIM Participacoes SA (NYSE:TSU) has slipped 9.2%. The company's volume for the morning is 1.5 million shares. This is 1.7 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. The gross profit margin for TSU is 59.9%. Tracking net profit margin over time for a single company can be a valuable tool for seeing how a business is developing. Net margin is 7.5%, which is high relative to its gross profit margin. Companies with profit margins reflecting a competitive advantage are able to improve their market share during the hard times - leaving them even better positioned when things improve again. 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. Operating profit margin for TSU is 0%.

Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. TSU has a P/B ratio of 1.68 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. Users need to be careful when applying this ratio though, as it is more useful for industrial companies that have a lot of tangible assets than it is for technology or consumer product companies that may not have much in the way of hard assets. SEE: How Buybacks Warps The Price-To-Book Ratio





Sears (Nasdaq:SHLD) has decreased to $53.01 per share, a 6% fall. So far today, the company's volume is 361,704 shares, while it was 517,469 shares yesterday. 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. SHLD's gross profit margin is 25.7%. 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. SHLD has an operating profit margin of 3.4%, which is low relative to its gross profit margin. 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 -6.8%. This shows that the company reported a net loss in the most recent quarter.

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 price/sales ratio measures a company's stock market price by its revenues. SHLD has a low P/S ratio of 0.14. Low P/S ratios are more attractive than high ratios because this indicates that an investor is paying less for each dollar of sales. It is important to compare P/S ratios for companies in the same industry, as ratios can vary quite widely for companies in different industries.



Starwood (NYSE:HOT) is currently trading at a share price of $49, a 4.6% decline. This morning, the company is trading a volume of 3.4 million shares. 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. The gross profit margin for HOT is 32.2%. HOT has an operating profit margin of 13.2% and a net profit margin of 9.7%, both low compared to its gross profit margin.

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 debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. HOT has a high debt ratio of 66.8%. This means that most of the company's assets are financed through debt. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.



After an increase of 4%, AutoZone (NYSE:AZO) has reached a current price of $383.70. At 463,344 shares, the company's volume so far today is 0.8 times the current three-month average. 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. Margin analysis is a great way to understand the profitability of companies. AZO has a gross profit margin of 53.9%. A company's operating margin is calculated by dividing operating income by revenues. AZO's operating profit margin is 20.2%. 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 10.7%.

Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. 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. AZO has a high capitalization ratio of 164.9%. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's investment. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.



After a decline of 3.6%, Wynn (Nasdaq:WYNN) has hit a share price of $96.97. This morning, the company's volume is 1.2 million shares. This is 0.6 times its average daily volume. 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 WYNN is 36.9%. The operating margin ratio can also be useful for tracking an individual company's performance across time, where an increasing ratio is good and a declining ratio may provide cause for concern that a company's business model is weakening. Relative to its gross profit margin, WYNN's operating margin of 19.8% is on the low side. Tracking net profit margin over time for a single company can be a valuable tool for seeing how a business is developing. The company's net profit margin is 10.9%.

Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. If the price/book value ratio of a stock is high, it may indicate that the stock is expensive, while a lower ratio may indicate that the stock is a bargain. WYNN's stock is trading for more than its book value with a P/B ratio of 39.26. This may be a sign that the company is overvalued. P/B has its shortcomings but is still widely used as a valuation metric, more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks; book value does not carry much meaning for service-based firms with few tangible assets. SEE: Using The Price-To-Book Ratio To Evaluate Companies





Family Dollar (NYSE:FDO) is down 3.5% to reach $67.48 per share. This morning, 1.6 million shares have been traded, lighter than yesterday's volume of 1.8 million shares. Volume is an important indicator because it indicates how significant a price shift is. 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. FDO's gross profit margin is 37.2%. Investors in growth stocks or short-term traders may be less interested in the operating margin ratio. Operating profit margin for FDO is 8.4%. 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. Net margin is 4.6%.

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. The P/E ratio has been used for ages by analysts and still remains one of the most relevant pieces of stock valuation. FDO's P/E ratio of 19.6 is above the industry average of 16.87. A company with a high P/E ratio will eventually have to live up to the high rating by substantially increasing its earnings, or the price will need to drop. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: The P/E Ratio: A Good Market-Timing Indicator





United Rentals (NYSE:URI) has increased to a share price of $33.08, a 2.6% rise. So far today, the company's volume is 985,635 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 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. 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. The gross profit margin for URI is 52.3%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. URI's operating profit margin is 13.3%. 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. The company has a net profit margin of 4.9%.

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 price/earnings to growth (PEG) ratio divides a company's P/E ratio by its growth rate of earnings-per-share. URI has a PEG ratio of 1.6, which is consistent 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.



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.