The market is having a bad day so far: the Nasdaq has decreased 2%; the S&P 500 has declined 1.7%; and the Dow is down 1.3%. The technology sector is a category of stocks relating to the research, development and/or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology. The technology sector offers a wide arrange of products and services for both customers and other businesses. Consumer goods like personal computers, stereos and televisions are continually improved and upgraded, offering the latest technology to all users. Businesses receive information and services from software and database systems, which allow the companies to make strategic business decisions.
The Technology sector (XLK) is down 1.9%, outperforming the market overall. Currently, the biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Quest Software, Inc. (Nasdaq:QSFT)||$2.21 billion||+5.3%|
|Mellanox Technologies, Ltd. (Nasdaq:MLNX)||$2.75 billion||-4.6%|
|Baidu (Nasdaq:BIDU)||$40 billion||-3.4%|
|VMware (NYSE:VMW)||$39.5 billion||-3.4%|
|Roper Industries (NYSE:ROP)||$9.67 billion||-3.3%|
|Linkedin Corporation (NYSE:LNKD)||$11.04 billion||-3%|
|Salesforce.com (NYSE:CRM)||$18.92 billion||-3%|
Forex Broker Summary: UFXMarkets
Rising 5.3%, Quest Software (Nasdaq:QSFT) is currently trading at $27.60 per share. The company's volume is currently 5.5 million shares for the day, 1.8 times the average volume over the last three months. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. QSFT's gross profit margin of 88.6% is fairly high. 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. QSFT has an operating profit margin of 2.5% and a net profit margin of 4.9%, both high compared to its gross profit margin.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. 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. QSFT's P/S ratio of 2.22 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 4.6%, Mellanox (Nasdaq:MLNX) has hit a share price of $66.13. The company's volume for the morning is 399,557 shares. This is 0.4 times the average daily volume. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. The gross profit margin for MLNX is 72.6%. Operating margin for MLNX is 14.9% and net margin is 8.2%, both high relative to its gross margin.
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 measures the leverage of a company, and a company's leverage is a good way to assess risk. MLNX has a low debt ratio of 16.5%. A low debt ratio means the company has more available cash flow. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Baidu (Nasdaq:BIDU) is trading at $110.68 per share, down 3.4%. So far today, the company's volume is 1.8 million shares, which is less activity than yesterday's volume of 3.1 million shares. The trading volume for a stock indicates the level of investor interest. Margin ratios highlight companies that are worth further examination. BIDU has a gross profit margin of 72.7%. 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. Relative to its gross profit margin, BIDU's operating margin of 49.1% is on the low side. 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 45.5%.
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. BIDU has a debt-equity ratio of 14%, 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 is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
VMware (NYSE:VMW) has decreased to $89.29 per share, a 3.4% fall. The company is currently trading a volume of 521,579 shares. 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. VMW's gross profit margin of 91.9% is on the high side. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. VMW's operating margin of 20.6% and net margin of 19.8% are high relative to its gross 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. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. VMW has a PEG ratio of 1.99, which is consistent 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.
Roper (NYSE:ROP) has fallen 3.3% and is currently trading at $95.93 per share. So far today, the company's volume is 106,962 shares, 0.3 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. ROP has a gross profit margin of 59.4%. The operating margin ratio can vary widely across industries, so investors should focus on comparing companies from similar industries or with similar business models. ROP has an operating profit margin of 24%. Because the business models of companies vary so widely, it can be difficult to compare net profit margin ratios for companies in different industries. Net margin is 15.6%.
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. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. ROP's P/E ratio of 21.9 is above the industry average of 17.81. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Understanding The P/E Ratio
Linkedin (NYSE:LNKD) is down 3% to reach $103.60 per share. This morning, the company's volume is 930,201 shares. This is 0.3 times its average daily volume. Volume indicates the level of interest that investors have in a company at its current price. 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. LNKD has a relatively high gross profit margin of 85.4%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. Relative to its gross profit margin, LNKD's operating profit margin of 5.6% and net profit margin of 2.4% are high.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual 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. The P/B ratio for LNKD is 16.31, 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. 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: How Buybacks Warps The Price-To-Book Ratio
At $132.99, Salesforce.com (NYSE:CRM) has slipped 3%. At 599,964 shares, the company's volume so far today is while it was two million shares yesterday. If a stock is trading on low volume, then there is not much interest in the stock. On the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock. 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. CRM has a gross profit margin of 90.7%, which is on the high end. This may indicate that the company is over-pricing its products and/or services. The operating and net profit margins for CRM are both negative. This is because the company reported net and operating losses in the most recent quarter.
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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. The P/S ratio for CRM is a high 8.68. 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 compare P/S ratios for companies in the same industry, as ratios can vary quite widely for companies in different industries.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.