This morning's trading has marked a bad day for the market so far. The Nasdaq has declined 0.3%; the S&P 500 has fallen 0.4%; and the Dow has slipped 0.5%. The financial sector is the category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate. Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop. Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.
The Financial sector (XLF) is currently lagging behind the overall market, down 0.4%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|MarketAxess Holdings Inc. (Nasdaq:MKTX)||$1.24 billion||-5%|
|BBVA Banco Frances S.A. (ADR) (NYSE:BFR)||$678.3 million||+4.7%|
|WellPoint (NYSE:WLP)||$18.83 billion||-2.5%|
|Oaktree Capital Group LLC (NYSE:OAK)||$5.65 billion||+2.1%|
|Credit Acceptance Corp. (Nasdaq:CACC)||$2.51 billion||-2.1%|
|Carlyle Group LP (Nasdaq:CG)||$7.24 billion||+1.6%|
|Alleghany Corporation (NYSE:Y)||$5.78 billion||-1.2%|
Forex Broker Summary: UFXMarkets
MarketAxess Holdings (Nasdaq:MKTX) has fallen 5% and is currently trading at $31.57 per share. The company's volume for the day so far is 77,713 shares. 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. Valuation ratios allow the investor to make a quick determination as to a company's investment value. A simple P/E ratio can reveal the stock's real market value and show how the valuation compares to its industry group or a benchmark like the S&P 500 Index. The P/E ratio for MKTX is 24.9, above the industry average of 16.63. A company with a high P/E ratio will eventually have to live up to the high rating by substantially increasing its earnings, or the price will need to drop. A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: How To Find P/E And PEG Ratios
BBVA Banco Frances S.A (NYSE:BFR) is up 4.7% to reach a current price of $3.97 per share. The company's volume is currently 138,166 shares for the day, 2.2 times its current three-month average. In technical analysis, trading volume is used to determine the strength of a market indicator. Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. BFR has a P/B ratio of 0.79, which shows that its book value is higher than its share price. This could mean that either the market believes the asset value is overstated, or the company is earning a very poor (even negative) return on its assets. One problem with the P/B value ratio is that it can be difficult to calculate the true book value of a company, so investors should be aware that many measures of book value may provide only a rough estimate, and should be taken with a grain of salt. SEE: How Buybacks Warps The Price-To-Book Ratio
WellPoint (NYSE:WLP) is currently trading at a share price of $56.45, a 2.5% decline. The company is trading at a volume of one million shares. This is on pace to reach yesterday's trading volume of 2.2 million shares. 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 a 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. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. When used consistently and uniformly, the price/earnings to growth (PEG) ratio is an essential tool that adds dimension to the price/earnings ratio, allows comparisons across diverse industries and is always on the lookout for value. WLP's PEG ratio of 0.74 is in line with the industry average. 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.
After rising 2.1%, Oaktree Capital (NYSE:OAK) is currently trading at a share price of $38.25. At 38,831 shares, the company's volume so far today is 0.2 times the average daily volume. Volume is an important indicator because it indicates how significant a price shift is. 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 ratio is calculated by dividing total liabilities by total assets. OAK has a debt ratio of 99.6%, which is on the high side. 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. 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.
After a decline of 2.1%, Credit (Nasdaq:CACC) has hit a share price of $100.21. The company is currently trading a volume of 2,253 shares. A stock's volume conveys how excited investors are about it. When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. 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 CACC is 67.4%, which is fairly high. The company may have trouble meeting operating and debt liabilities on time and surviving adverse economic conditions. Prudent use of leverage (debt) increases the financial resources available to a company for growth and expansion.
Increasing 1.6%, Carlyle (Nasdaq:CG) is trading at $24.18 per share. The company's volume for the day so far is 9,097 shares, zero times the current three-month average. Volume is used to evaluate how meaningful the price movement of a stock is. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The price/book value ratio is calculated by dividing the current stock price by the company's book value per share. CG has a P/B ratio of 7.85 which shows that its share price is higher than its book value. 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
Currently trading at $337.20 per share, Alleghany (NYSE:Y) has fallen 1.2%. So far today, the company's volume is 12,200 shares. At this rate, trading activity will likely be down from yesterday when 38,259 shares changed hands. High volume indicates a lot of investor interest while low volume indicates the opposite. Valuation ratios allow the investor to make a quick determination as to a company's investment value. The price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. The P/S ratio for Y is a high 2.06. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
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. However, these fundamental metrics must be analyzed with historic data, industry information in addition to firm specific financial statements.