The market is having a good day so far: the Nasdaq has climbed 1%; the S&P 500 is up 1.3%; and the Dow has risen 1.3%. The healthcare sector is the category of stocks relating to medical and healthcare goods or services. This sector includes hospital management firms, health maintenance organizations (HMOs), biotechnology and a variety of medical products. Stocks in the healthcare sector are often considered to be defensive because the products and services are essential. Even during economic downturns, people will still require medical aid and medicine to overcome illness. Having a consistent demand for goods and services makes this sector less sensitive to business cycle fluctuations.
Underperforming the market overall, the Healthcare sector (XLV) is up 1%, and these are its current biggest movers:
|Company||Market Cap||Percentage Change|
|Affymax, Inc. (Nasdaq:AFFY)||$514.2 million||+15.4%|
|Questcor Pharmaceuticals, Inc. (Nasdaq:QCOR)||$2.87 billion||-8.2%|
|ChemoCentryx, Inc. (Nasdaq:CCXI)||$525.2 million||-3.9%|
|MAKO Surgical Corp. (Nasdaq:MAKO)||$638.7 million||-3.6%|
|Pharmacyclics, Inc. (Nasdaq:PCYC)||$3.76 billion||-3.3%|
|Thoratec Corporation (Nasdaq:THOR)||$1.95 billion||+3%|
|Celgene (Nasdaq:CELG)||$27.73 billion||+2.7%|
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Affymax (Nasdaq:AFFY) rose a significant 15.4% to reach $16.43 per share. So far today, the company's volume is 2.6 million shares, while it was 3.9 million shares yesterday. 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. 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 company's net profit margin is negative. This shows that the company reported a net loss in the most recent quarter.
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. AFFY's P/B ratio of 5.28 shows that its share price is higher than its book value. This high share price relative to asset value is likely to indicate that the company has been earning a very high return on its assets. 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: Using The Price-To-Book Ratio To Evaluate Companies
Questcor Pharmaceuticals (Nasdaq:QCOR) has decreased to $41.74 per share, a 8.2% fall. The company's volume for the day so far is 2.8 million shares. This is 0.5 times its current three-month average. 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 ratios highlight companies that are worth further examination. QCOR has a high gross profit margin of 94.9%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. 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's net margin of 38.6% 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. 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. QCOR has an operating profit margin of 59.7%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The price/sales ratio measures a company's stock market value by its total revenues or alternatively, a company's price per share by its revenue per share. The P/S ratio for QCOR is 8.55, which is relatively high. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
Falling 3.9%, ChemoCentryx (Nasdaq:CCXI) is currently at a share price of $13.96. So far today, the company's volume is 1,700 shares, 0.2 times the current daily average. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. Operating margin for CCXI is -830.4%. This is because the company reported a net operating loss in the most recent quarter.
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 ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. CCXI's debt ratio of 9.1% is on the low side. 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.
MAKO (Nasdaq:MAKO) has fallen 3.6% and is currently trading at $14.44 per share. The company's volume for the day so far is 732,081 shares. A stock's volume conveys how excited investors are about it. Margin analysis is a great way to understand the profitability of companies. MAKO's gross profit margin is 71.5%. MAKO has negative operating and net profit margins. This is because the company reported net and operating losses in the most recent quarter.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm. The P/B ratio for MAKO is 6.56, indicating that the stock is trading for more than its book value. This may be a sign that the company is overvalued. 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: How Buybacks Warps The Price-To-Book Ratio
Currently trading at $52.72 per share, Pharmacyclics (Nasdaq:PCYC) has fallen 3.3%. At 687,194 shares, the company's volume so far today is below yesterday's volume of 2.2 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that 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. PCYC has an operating profit margin of -932.1%. This means that the company came in with a net operating loss in the most recent quarter.
Valuation ratios allow the investor to make a quick determination as to a company's investment value. A price/sales ratio is derived by dividing stock market price by company sales. PCYC has a high P/S ratio of 23.53. This could be a good sign if the share price increases. 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.
Thoratec (Nasdaq:THOR) is currently trading at $34.17 per share, a 3% increase. The company is currently trading a volume of 320,376 shares. This is 0.8 times the average volume over the last three months. If a stock price moves on high volume, this means that the change is a significant one. 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. THOR has a gross profit margin of 73.3%. Net profit margin compares net income with sales. With a net profit margin of 17.9%, the company has a high one compared to its gross profit margin. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. 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 THOR is 29.2%.
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 gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. THOR has a debt ratio of 13.8%, which is fairly low. 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.
After rising 2.7%, Celgene (Nasdaq:CELG) is currently trading at a share price of $64.63. At 1.2 million shares, the company's volume so far today is 0.5 times its current daily average. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. CELG has a gross profit margin of 92.6%, which is on the high end. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. Operating margin for CELG is 37.9% and net margin is 29.3%, both high relative to its gross margin.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. A simple P/E ratio can reveal the stock's real market value and show how the valuation compares to its industry group or a benchmark like the S&P 500 Index. CELG's P/E ratio of 19.7 is consistent with the industry average. 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: Investment Valuation Ratios: Price/Earnings Ratio
The Bottom Line On any given day, a particular stock may see positive or negative change in its share price. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.