The market is on the rise this morning. The Nasdaq has increased 1%; the S&P 500 is trading up 1.3%; and the Dow is up 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.
Underperforming the market overall, the Technology sector (XLK) is up 1%, and these are its current biggest movers:
|Company||Market Cap||Percentage Change|
|Lexmark International Inc (NYSE:LXK)||$1.73 billion||-14.5%|
|Franklin Electric Co. (Nasdaq:FELE)||$1.22 billion||+3.6%|
|MicroStrategy Incorporated (Nasdaq:MSTR)||$1.24 billion||+2.9%|
|Energizer Holdings, Inc. (NYSE:ENR)||$4.84 billion||+2.4%|
|Hewlett-Packard (NYSE:HPQ)||$38.15 billion||-2.3%|
|Salesforce.com (NYSE:CRM)||$17.6 billion||+2.2%|
|Mettler-Toledo International Inc. (NYSE:MTD)||$4.68 billion||+2.2%|
Broker Summary: TD Ameritrade Thinkorswim
Taking a 14.5% hit, Lexmark International (NYSE:LXK) is currently trading at $20.79 per share. So far today, 3.8 million shares have changed hands, more than yesterday's 2.1 million shares. The trading volume for a stock indicates the level of investor interest. 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. The gross profit margin for LXK is 43.7%. Operating margin is determined by taking operating income (income minus variable expenses) and dividing it by sales. LXK's operating profit margin is 9%. A high net profit margin indicates a highly profitable company, and a low profit margin indicates the opposite. Net margin is 7.2%.
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. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. The debt-equity ratio of 45% is relatively low. 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.
Increasing 3.6%, Franklin (Nasdaq:FELE) is trading at $53.89 per share. So far today, 33,780 shares have changed hands. Volume is an important indicator because it indicates how significant a price shift is. 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. FELE's gross profit margin is 36.3%. 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. Operating profit margin for FELE is 10.4%. 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 profit margin is 9%.
Valuation ratios like 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 are useful in determining how attractive a potential or existing investment is. 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. FELE has a fairly low capitalization ratio of 23.8%. Investors generally consider a company with low debt and high equity levels is a good quality investment. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
MicroStrategy (Nasdaq:MSTR) has risen 2.9% and is currently trading at $118.12 per share. At 64,593 shares, the company's volume so far today is 0.4 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 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. MSTR has a gross profit margin of 78.4%, which is on the high end. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Operating margin for MSTR is 0.3% and net margin is 2.9%, 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. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. MSTR's stock is trading for more than its book value with a P/B ratio of 7.51. 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. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: Using The Price-To-Book Ratio To Evaluate Companies
Energizer Holdings (NYSE:ENR) is currently trading at $75.83 per share, a 2.4% increase. The company's volume for the morning is 261,957 shares. This is 0.7 times the current daily average. Volume is used to evaluate how meaningful the price movement of a stock is. Margin analysis is a great way to understand the profitability of companies. ENR's gross profit margin is 50.3%. 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. ENR's operating profit margin is 13.1%. Net profit margin compares net income with sales. Net profit margin for the company is 7%.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. One of the most important estimates of stock market valuation is the price/earnings ratio (P/E ratio). Compared to the industry average of 11.87, ENR's P/E ratio of 15.1 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. To determine the P/E ratio, an investor divides the market price of the stock by the earnings-per-share (EPS) of the stock. SEE: Investment Valuation Ratios: Price/Earnings Ratio
After a decline of 2.3%, Hewlett-Packard (NYSE:HPQ) has hit a share price of $18.90. This morning, 14.4 million shares have been traded, lighter than yesterday's volume of 23.5 million shares. A stock's volume conveys how excited investors are about it. 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. The gross profit margin for HPQ is 25.2%. Operating margin for HPQ is 7.2% and net margin is 4.2%, both low relative to its gross margin.
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. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. PEG ratio for HPQ is consistent with the industry average at 1.79. 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.
Salesforce.com (NYSE:CRM) is at $130.30 per share after an increase of 2.2%. This morning, the company is trading a volume of 740,139 shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. 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. CRM has a relatively high gross profit margin of 90.7%. This may indicate that the company is over-pricing its products and/or services. Both CRM's operating and net profit margins are 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. The price/sales ratio measures a company's stock market price by its revenues. 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. A limitation of the P/S ratio is that the price component measures only stock market captialization, while sales are a function of the entire capital structure, potentially leading to wide differences between levered and unlevered companies.
Mettler-Toledo International (NYSE:MTD) has moved up 2.2% and is currently trading at $152.04 per share. The company's volume for the day so far is 38,633 share, 0.2 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. The gross profit margin for MTD is 54%. Investors in growth stocks or short-term traders may be less interested in the operating margin ratio. Operating profit margin for MTD is 13%. 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 11.7%.
Valuation ratios allow the investor to make a quick determination as to a company's investment value. The debt ratio shows the proportion of assets that a company is financing through debt. MTD's debt ratio of 61.8% is fairly high. This might mean that the company now has low borrowing capacity, which reduces it's financial flexibility. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
The Bottom Line The nature of the market is such that stocks will have good days and bad days. 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.