The market has been doing well after the morning's trading. The Nasdaq is up 1%; the S&P 500 has climbed 1.3%; and the Dow has moved up 1.3%. The energy sector is the category of stocks that relate to producing or supplying energy. This sector includes companies involved in the exploration and development of oil or gas reserves, oil and gas drilling, or integrated power firms. Performance in the sector is largely driven by the supply and demand for worldwide energy. Energy producers will do very well during times of high oil and gas prices, but will earn less when the value of energy drops. Furthermore, this sector is sensitive to political events, which historically have driven changes in the price of oil.
The Energy sector (XLE) is up 1%, outperforming the market overall. The biggest movers in the sector so far are:
|Company||Market Cap||Percentage Change|
|Cabot Oil & Gas Corporation (NYSE:COG)||$8.18 billion||+3.7%|
|InterOil Corporation (USA) (NYSE:IOC)||$3.39 billion||+3.7%|
|Transocean (NYSE:RIG)||$15.56 billion||+3.2%|
|Walter Energy, Inc. (NYSE:WLT)||$2.34 billion||-2.6%|
|EQT Corporation (NYSE:EQT)||$7.93 billion||+2.2%|
|Diamond Offshore Drilling, Inc. (NYSE:DO)||$8.52 billion||+2.1%|
|Continental Resources, Inc. (NYSE:CLR)||$11.85 billion||+1.8%|
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Cabot Oil & Gas (NYSE:COG) has increased to a share price of $40.42, a 3.7% rise. So far today, the company's volume is 1.5 million shares. 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. Margin analysis is a great way to understand the profitability of companies. COG has a gross profit margin of 74.2%. COG has an operating profit margin of 17.1% and a net profit margin of 12.3%, both high compared to its gross profit margin.
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. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). Compared to the industry average of 10.14, COG's P/E ratio of 64.6 is quite high. Usually, if a stock has a high P/E ratio, it indicates that the market expects the company to grow earnings quickly in the future. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock
InterOil Corporation (NYSE:IOC) is up 3.7% to reach a current price of $73 per share. This morning, 119,711 shares have been traded, lighter than yesterday's volume of 263,387 shares. Volume is used to evaluate how meaningful the price movement of a stock 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. IOC has a low gross profit margin of 4.1%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. IOC has an operating profit margin of 5.3% and a net profit margin of 2.2%, 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 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. IOC has a fairly low capitalization ratio of 10.8%. Low leverage is a significant balance sheet strength, a sign of a less risky investment. The capitalization ratio is one of the more meaningful debt ratios because it focuses on the relationship of debt liabilities as a component of a company's total capital base, which is the capital raised by shareholders and lenders.
Increasing 3.2%, Transocean (NYSE:RIG) is trading at $45.80 per share. So far today, 2.3 million shares have changed hands. This is 0.8 times the 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. RIG has a gross profit margin of 25.7%. 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, RIG's operating margin of 11.6% is on the low side. 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. The company has a net profit margin of -63.4%. This shows that the company reported a net loss in the most recent quarter.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. RIG has a P/B ratio of 1.02 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 ratios are particularly useful to value investors, distressed or "vulture" investors, or any other investors purchasing beaten-down securities but are less useful to investors focused on growth stocks, purchasing IPOs, or investing in technology or other "asset-lite" companies. SEE: Investment Valuation Ratios: Price/Book Value Ratio
Walter Energy (NYSE:WLT) has fallen 2.6% and is currently trading at $36.40 per share. So far today, the company's volume is 1.2 million shares, 0.3 times the average daily volume. Volume is an important indicator because it indicates how significant a price shift is. Margin ratios highlight companies that are worth further examination. WLT's gross profit margin is 37.4%. Operating margin can be an important ratio for some investors, particularly those investing in weaker companies or companies in cyclical industries. With an operating profit margin of 13.3%, WLT has a low one relative to its gross profit margin. 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 11%.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. WLT's dividend yield of 1.3% is fairly low. This may indicate that the company's stock is overpriced. It is important to remember that dividends are only one component of a stock's return and capital appreciation (or decline) must also be considered when evaluating a security. SEE: Dividend Yield For The Downturn
Rising 2.2%, EQT (NYSE:EQT) is currently trading at $54.14 per share. This morning, the company is trading a volume of 514,207 shares. 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. 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 EQT is 70.8%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. Operating profit margin for EQT is 34.1%. Net profit margin compares net income with sales. The company's net profit margin is 26.3%.
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 is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. EQT has a high P/S ratio of 4.41. 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.
Diamond Offshore Drilling (NYSE:DO) has risen 2.1% and is currently trading at $62.56 per share. The company's volume is currently 456,168 shares for the day, while it was 1.5 million shares yesterday. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. DO's gross profit margin is 49.9%. Operating margin for DO is 34.5% and net margin is 27.3%, both low 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 gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. DO has a low debt ratio of 37.3%. 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. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
Continental Resources (NYSE:CLR) is currently trading at $66.62 per share, a 1.8% increase. The company is currently trading a volume of 349,490 shares. This is 0.3 times the average volume over the last three months. Volume indicates the level of interest that investors have in a company at its current price. 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. CLR has a high gross profit margin of 87.4%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. CLR's operating margin of 34.3% and net margin of 33.2% are high relative to its gross margin.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The debt-equity (D/E) ratio is a leverage ratio. The D/E ratio for CLR is 80%. 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.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.