The market is doing well so far today. The Nasdaq has risen 1.1%; the S&P 500 has climbed 0.3%; and the Dow has moved up 0.3%. 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.
Despite a good day for the overall market so far, the Utilities sector (XLU) is down 0.4% and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Hawaiian Electric Industries, Inc. (NYSE:HE)||$2.82 billion||-2.5%|
|Exterran Partners, L.P. (Nasdaq:EXLP)||$885.9 million||+1.7%|
|Atmos Energy Corporation (NYSE:ATO)||$3.32 billion||-1.7%|
|AES (NYSE:AES)||$9.68 billion||+1.5%|
|CPFL Energia S.A. (ADR) (NYSE:CPL)||$10.96 billion||+1.4%|
|Targa Resources Corp (NYSE:TRGP)||$1.93 billion||-1.3%|
|Markwest Energy Partners LP (NYSE:MWE)||$6.62 billion||+1.3%|
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Hawaiian Electric Industries (NYSE:HE) is trading at $28.52 per share, down 2.5%. The company's volume for the day so far is 241,286 shares. This is 0.9 times its current three-month 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 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. HE has a low gross profit margin of 14%. A low gross profit margin compared to competitors may be a sign that the company is under-pricing its products and/or services. Net profit margin is calculated by dividing net income by sales; the higher the net profit margin, the better. Relative to its gross profit margin, the company has a low net profit margin of 4.5%. Investors in companies with low profit margins need to be concerned that if sales drop, profits will fall sharply as well.
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. HE has a high debt ratio of 83.9%. This means that most of the company's assets are financed through debt. 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.
Increasing 1.7%, Exterran Partners (Nasdaq:EXLP) is trading at $21.32 per share. At 18,205 shares, the company's volume so far today is 0.2 times the average daily volume. 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 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 EXLP is 51.2%. Operating margin can be an important ratio for some investors, particularly those investing in weaker companies or companies in cyclical industries. Operating profit margin for EXLP is 12%. Comparing net profit margins for companies with similar business models or in similar industries can yield valuable information as to which business is actually performing better. Net margin is 3.1%.
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 debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. EXLP has a high D/E ratio of 127%. Companies with high D/E ratios may have difficulty attracting additional investment capital. 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.
Atmos (NYSE:ATO) is currently trading at a share price of $36.30, a 1.7% decline. This morning, the company is trading a volume of 130,298 shares. If a stock price moves on high volume, this means that the change is a significant one. 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. ATO's gross profit margin is 33%. Net profit margin is calculated by dividing net income by sales. The company's net profit margin is 4.5%.
A company's investment value can be 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 P/E ratio has been used for ages by analysts and still remains one of the most relevant pieces of stock valuation. Compared to the industry average of 16.4, ATO's P/E ratio of 18.8 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. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Can Investors Trust the P/E Ratio?
After an increase of 1.5%, AES (NYSE:AES) has reached a current price of $12.80. So far today, the company's volume is two million shares, while it was 6.2 million shares yesterday. 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. Margin ratios highlight companies that are worth further examination. The gross profit margin for AES is 31.1%. 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 margin is 8.8%, which is low compared to its gross 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.
Valuation ratios allow the investor to make a quick determination as to a company's investment value. 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 AES is 75.5%, which is fairly high. 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. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
After rising 1.4%, CPFL Energia S.A (NYSE:CPL) is currently trading at a share price of $23.08. So far today, the company's volume is 176,844 shares. This is 0.3 times its average volume over the past three months. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. CPL has a gross profit margin of 36.2%. 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 has a net profit margin of 11.2%.
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. 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. CPL's P/B ratio of 2.71 shows that its share price is higher than its book value. This may be a sign that the company is overvalued. 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
Slipping 1.3%, Targa (NYSE:TRGP) is currently trading at $44.91 per share. So far today, the company's volume is 59,361 shares, 0.2 times the current daily average. The trading volume for a stock indicates the level of investor interest. 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. TRGP has a low gross profit margin of 10.1%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. 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 has a net profit margin of 0.5%, which is low relative to its gross profit margin. A low net profit margin may be a sign of a price war that is lowering profits.
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. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. TRGP's dividend yield is 3.5%. Simply comparing the level of dividends that two stocks pay does not give a true reflection of which security is more attractive, so investors calculate the dividend yield in order to standardize dividend payments. SEE: Guide To Stock-Picking Strategies: Income Investing
Markwest Energy (NYSE:MWE) has increased to a share price of $54.65, a 1.3% rise. The company is currently trading a volume of 182,906 shares. 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 analysis is a great way to understand the profitability of companies. MWE has a gross profit margin of 54.6%. The operating margin ratio can vary widely across industries, so investors should focus on comparing companies from similar industries or with similar business models. MWE's operating profit margin is 14.7%. A high net profit margin indicates a highly profitable company, and a low profit margin indicates the opposite. Net profit margin for the company is 10.5%.
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. A price/sales ratio is derived by dividing stock market price by company sales. MWE has a high P/S ratio of 4.67. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. 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.
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.