The market has been doing well after the morning's trading. The Nasdaq has risen 1.1%; the S&P 500 has moved up 0.3%; and the Dow is trading up 0.3%.
The Services sector (IYC) is up 0.8%, underperforming the market overall. The biggest movers in the sector are currently:
|Company||Market Cap||Percentage Change|
|New Oriental Education & Tech Grp (ADR) (NYSE:EDU)||$1.5 billion||+35.2%|
|Walgreen (NYSE:WAG)||$26.59 billion||+10.2%|
|TIM Participacoes SA (ADR) (NYSE:TSU)||$11.75 billion||-8.9%|
|Ebay (Nasdaq:EBAY)||$52.24 billion||+8.4%|
|Coach (NYSE:COH)||$16.69 billion||+5.2%|
|Life Time Fitness, Inc. (NYSE:LTM)||$1.99 billion||-5.2%|
|CVS Caremark (NYSE:CVS)||$62.29 billion||-4.7%|
Forex Broker Summary: Forex Capital Markets (FXCM)
New Oriental Education & Tech Grp (NYSE:EDU) is currently at $12.84 per share after a dramatic increase of 35.2%. This morning, the company's volume is 23 million shares. This is two times the current daily average. 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. 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. EDU's gross profit margin is 60.5%. All else being equal, investors should feel more confident investing in a company with a high operating margin than one with a low operating margin. Relative to its gross profit margin, EDU's operating margin is on the high side. A high operating margin indicates a high margin of safety in an investment. Net profit margin is a good ratio for determining how a company is performing. The company has a net profit margin of 18.3%.
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. 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. EDU has a high P/S ratio of 5.87. This could be a good sign if the share price increases. It is important to keep in mind when looking at the P/S ratio that just because a company is generating revenues, this does not mean that the company is profitable, and in the long run, profits drive stock prices.
Walgreen (NYSE:WAG) is trading at $34.12 per share, a significant rise of 10.2%. At 33 million shares, the company's volume so far today is whereas yesterday, volume was only 8.4 million shares. A stock's volume conveys how excited investors are about it. 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 WAG is 29.9%. The operating profit margin indicates how much EBIT is generated per dollar of sales. WAG's operating profit margin of 4.9% is low relative to its gross profit margin. Because the business models of companies vary so widely, it can be difficult to compare net profit margin ratios for companies in different industries. The company's net profit margin is 3.5%.
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 debt ratio is calculated by dividing total liabilities by total assets. WAG has a debt ratio of 44.7%, which is fairly low. 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.
TIM Participacoes SA (NYSE:TSU) is currently trading at a share price of $21.62, a 8.9% decline. This morning, the company is trading a volume of 4.9 million shares. 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. TSU's gross profit margin is 59.9%. 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's net margin of 7.5% is high relative to its gross profit margin. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. The operating margin ratio can vary widely across industries, so investors should focus on comparing companies from similar industries or with similar business models. Operating profit margin for TSU is 0%.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The debt-equity (D/E) ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. TSU's debt-equity ratio of 28% is on the low end. 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.
Ebay (Nasdaq:EBAY) is currently trading at $43.86 per share, a 8.4% increase. So far today, the company's volume is 20.2 million shares, 1.9 times its current three-month average. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. EBAY has a high gross profit margin of 75.9%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. The operating profit margin for EBAY is 19.9%, high compared to its gross profit margin. A high operating margin indicates that a company has a greater ability to pay its fixed costs, which means that the company has greater financial flexibility and a greater margin of error should its business decline. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. Net profit margin for the company is 26.8%.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. Perhaps one of the most widely-used stock analysis tools is the price-to-earnings ratio, or P/E. EBAY's P/E ratio of 15.4 falls below the industry average of 21.95. A low P/E ratio may indicate that the market expects relatively slower earnings growth. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: Understanding The P/E Ratio
Coach (NYSE:COH) has risen 5.2% to hit a current price of $61 per share. The company's volume for the morning is 2.3 million shares. This is 0.6 times its average daily volume. 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 ratios highlight companies that are worth further examination. COH has a gross profit margin of 72.6%. Net profit margin is calculated by dividing net income by sales. Net margin is 21.3%, which is high relative to its gross profit margin. A company with a high profit margin has a greater capability to maintain strong earnings during a recession than does a company with a low profit margin, providing investors with a greater margin of safety. Operating margin provides a measure of a company's ability to pay its fixed costs such as interest on debt, particular if its business were to decline in the future. COH's operating profit margin is 30.4%.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. COH has a low capitalization ratio of 1.2%. Low leverage is a significant balance sheet strength, a sign of a less risky 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 5.2%, Life Time Fitness (NYSE:LTM) has hit a share price of $44.12. The company's volume is currently 1.1 million shares for the day, above yesterday's volume of 661,801 shares. If a stock price moves on high volume, this means that the change is a significant one. 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 LTM is 40.1%. 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 18%, LTM 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. The company has a net profit margin of 9.4%.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The assumption with high price/earnings stocks (generally of the growth variety) is that investors are willing to buy at a high price because they believe that the stock has significant growth potential, and the price/earnings to growth (PEG) ratio helps investors determine the degree of reliability of that growth assumption. LTM has a PEG ratio of 1.16. 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.
CVS (NYSE:CVS) is trading at $46.32 per share, down 4.7%. So far today, the company's volume is 14.1 million shares. Volume is used to evaluate how meaningful the price movement of a stock is. 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. CVS has a low gross profit margin of 20.1%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. Relative to its gross profit margin, CVS' operating profit margin of 4.6% and net profit margin of 3.1% are low.
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. CVS' stock is trading for more than its book value with a P/B ratio of 1.56. 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. 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: 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. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. 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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