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Tickers in this Article: LUV, SWFT, CPA, GMLP, GSH, ODFL, RYAAY
After the morning's trading, the Nasdaq has decreased 0.5%, the S&P 500 has fallen 0.2% and the Dow has increased 0.1%. The transportation sector is a category of stocks relating to the transportation of goods or customers. It is made up of airlines, railroads and trucking companies. The performance of the transportation sector is sensitive to the price of oil. Because operations revolve around the use of vehicles, fuel prices represent a significant cost to transportation companies. As the price of oil rises, transportation companies will be expected to earn less. Inversely, these companies do well when the cost of fuel decreases.

The biggest movers in the Transportation sector (IYT) (+0.2%) are:
CompanyMarket CapPercentage Change
Southwest Airlines (NYSE:LUV).09 billion+4.8%
Swift Transportation Company (NYSE:SWFT).27 billion-3.8%
Copa Holdings, S.A. (NYSE:CPA).55 billion-2.4%
Golar LNG Partners LP (Nasdaq:GMLP)8 million-2.2%
Guangshen Railway Co. Ltd (ADR) (NYSE:GSH).19 billion+2%
Old Dominion Freight Line (Nasdaq:ODFL).53 billion-1.8%
Ryanair Holdings plc (ADR) (Nasdaq:RYAAY).62 billion+1.5%
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Southwest (NYSE:LUV) is at $9.68 per share after an increase of 4.8%. So far today, the company's volume is 6.8 million shares, 0.7 times the average daily volume. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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 LUV is 36.6%. 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 LUV is 0.9%. Net profit margin compares net income with sales. The company has a net profit margin of 1.6%.

Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. 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. The debt ratio for LUV is 62.3%, which is relatively high. This might mean that the company now has low borrowing capacity, which reduces it's financial flexibility. 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.

Swift Transportation (NYSE:SWFT) has decreased to $8.77 per share, a 3.8% fall. So far today, the company's volume is 1.2 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. SWFT has a gross profit margin of 47.7%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. SWFT's operating profit margin is 7%. Net profit margin is calculated by dividing net income by sales. Net profit margin for the company is 2.7%.

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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. SWFT's P/S ratio of 0.47 is fairly low. Highly levered companies are likely to have lower P/S ratios because the price aspect of this ratio only measures stock market valuation while sales is a function of both stock market and bond market capitalization. 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.

Falling 2.4%, Copa Holdings (NYSE:CPA) is currently at a share price of $78.24. The company's volume is currently 102,835 shares for the day, 0.3 times its average over the past three months. 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. 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. CPA's gross profit margin is 47.8%. 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. Operating profit margin for CPA is 20.5%. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. The company's net profit margin is 14.3%.

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/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. CPA's stock is trading for more than its book value with a P/B ratio of 2.32. 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 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

Golar LNG (Nasdaq:GMLP) is trading at $32.90 per share, down 2.2%. So far today, the company's volume is 14,829 shares. Trading activity is down from yesterday when 175,511 shares changed hands. If a stock price moves on high volume, this means that the change is a significant one. 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. GMLP has a high gross profit margin of 83.4%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. 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. Relative to its gross profit margin, GMLP's operating margin of 62.6% is on the low side. A high net profit margin indicates a highly profitable company, and a low profit margin indicates the opposite. The company has a net profit margin of 36.9%.

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. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. The capitalization ratio for GMLP is 96%, which is fairly high. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's 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 2%, Guangshen Railway Co. Ltd (NYSE:GSH) is trading at $15.76 per share. So far today, the company's volume is 7,164 shares, 0.4 times its current daily average. A stock's volume conveys how excited investors are about it. 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. GSH has a gross profit margin of 32.5%. Compared with its gross profit margin, GSH's operating profit margin of 11.7% and net profit margin of 11.4% are low.

Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. GSH's P/E ratio is 6.5. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: The P/E Ratio: A Good Market-Timing Indicator

At $43.23, Old Dominion Freight (Nasdaq:ODFL) has slipped 1.8%. So far today, 72,740 shares have changed hands. Volume is an important indicator because it indicates how significant a price shift is. 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. ODFL has a relatively high gross profit margin of 76.7%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. Operating margin for ODFL is 10.9% and net margin is 7.6%, both high relative to its gross margin.

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 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. ODFL has a PEG ratio of 0.67, which is consistent with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.

Ryanair Holdings plc (Nasdaq:RYAAY) has risen 1.5% to hit a current price of $29.88 per share. At 111,197 shares, the company's volume so far today is 0.5 times the average volume over the last three months. 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. 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 easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. RYAAY has a high debt ratio of 63.2%. This means that the company's cash flow is significantly impacted by paying off principal and interest and that any negative change in performance or rise in interest rates could result in default. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.

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. 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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