On a good day for the market, the Nasdaq has risen 1.2%, the S&P 500 is up 0.6% and the Dow has climbed 0.7%. The utilities sector is a category of stocks for utilities such as gas and power. It contains companies such as electric, gas and water firms and integrated providers. Because utilities require significant infrastructure, these firms often carry large amounts of debt. With a high debt load, utilities companies become sensitive to changes in the interest rate. As interest rates rise or drop, the debt payments will increase or decrease. The utilities sector performs best when interest rates are falling or remain low.
The biggest movers in an essentially flat Utilities (XLU) sector are:
|Company||Market Cap||Percentage Change|
|Atlas Energy LP (NYSE:ATLS)||$1.66 billion||-2.1%|
|DCP Midstream Partners, LP (NYSE:DPM)||$2.23 billion||+1.9%|
|Exterran Partners, L.P. (Nasdaq:EXLP)||$885.4 million||+1.7%|
|Huaneng Power International, Inc. (ADR) (NYSE:HNP)||$10.03 billion||+1.5%|
|National Fuel Gas Co. (NYSE:NFG)||$4.09 billion||+1.5%|
|WGL Holdings Inc (NYSE:WGL)||$2.06 billion||+1.4%|
|Entergy (NYSE:ETR)||$12.48 billion||+1.2%|
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At $31.65, Atlas (NYSE:ATLS) has slipped 2.1%. The company's volume is currently 72,617 shares for the day, below yesterday's volume of 533,584 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. Margin ratios highlight companies that are worth further examination. ATLS has a low gross profit margin of 20%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. ATLS' operating margin of 0.3% and net margin of 3.1% are low relative to its gross margin.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. 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. ATLS has a high capitalization ratio of 56.8%. If the company is a company is in a highly competitive business and hobbled by high debt, it will find its competitors taking advantage of its problems to grab more market share. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into the use of leverage by a company.
DCP Midstream (NYSE:DPM) is at $43.61 per share after an increase of 1.9%. The company's volume for the day so far is 42,708 shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. 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. DPM has a low gross profit margin of 15.5%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. Operating margin for DPM is 5.9% and net margin is 7.9%, both low 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 price/earnings to growth (PEG) ratio can reveal value what price/earnings (P/E) ratios alone may not so that if a company has a high P/E ratio (an indication that its stock is overpriced) but its earnings are growing very quickly, the PEG ratio may reveal that the company is actually fairly valued, or perhaps even a bargain. DPM's PEG ratio is 0.96. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
Exterran Partners (Nasdaq:EXLP) has risen 1.7% to hit a current price of $21.30 per share. The company's volume for the day so far is 35,580 share, 0.5 times its average over the past three months. Volume is an important indicator in technical analysis as it is used to measure the worth of a market move. If the markets have made strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move. 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 EXLP is 51.2%. 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. EXLP's operating profit margin is 12%. Net profit margin is calculated by dividing net income by sales. Net margin is 3.1%.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. 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 EXLP is 1.79, indicating that the stock is trading for more than its book value. This implies that investors expect management to create more value from a given set of assets and/or that the market value of the firm's assets is significantly higher than their accounting value. All else being equal, a stock with a low P/B value ratio is more attractive than a stock with a high ratio. SEE: Investment Valuation Ratios: Price/Book Value Ratio
After an increase of 1.5%, Huaneng Power International, Inc (NYSE:HNP) has reached a current price of $28.97. The company's volume for the morning is 44,666 shares. This is 0.5 times its current daily average. When a stock price moves up or down, watching the volume is a good way of identifying how significant that 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. HNP's gross profit margin is 34.6%. A company's operating margin is calculated by dividing operating income by revenues. HNP has an operating profit margin of 4.6%. 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. Net profit margin for the company is 0.9%.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. The dividend yield for HNP is 0.9%, which is on the low end. If you are an income investor, this stock may not be attractive to you. To calculate the dividend yield, divide the level of dividends by the stock price; the higher the yield, the more attractive the security. SEE: Dividend Yield For The Downturn
Increasing 1.5%, National Fuel (NYSE:NFG) is trading at $49.86 per share. This morning, 222,192 shares have been traded, lighter than yesterday's volume of 930,226 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. 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 gross profit margin for NFG is 45.3%. A high net profit margin indicates a highly profitable company, and a low profit margin indicates the opposite. The company's net profit margin is 12.9%.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. NFG has a high P/S ratio of 2.42. 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.
WGL Holdings (NYSE:WGL) has moved up 1.4% and is currently trading at $40.48 per share. So far today, the company's volume is 126,527 shares. If a stock price moves on high volume, this means that the change is a significant one. Margin analysis is a great way to understand the profitability of companies. WGL has a low gross profit margin of 17.7%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. 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 3.9%, which is low relative to its gross profit margin. A company with a low or negative net profit margin can potentially increase its profitability by taking steps to reduce costs and increase sales.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. 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. WGL has a debt ratio of 67.5%, which is on the high side. 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.
Entergy (NYSE:ETR) is up 1.2% to reach a current price of $71.29 per share. With 416,297 shares changing hands so far today, the company's volume 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. 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. ETR has a gross profit margin of 35%. 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 margin for ETR is -2.4%. This is because the company reported a net operating loss in the most recent quarter. Net profit margin compares net income with sales. The company has a net profit margin of 8.7%.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. ETR's D/E ratio of 140% is on the high side. Companies in capital-intensive industries usually have higher D/E ratios because they need to buy more property, plants, and equipment to operate. 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 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. 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.