It's been a bad day for the market after the morning's trading. The Nasdaq has decreased 0.2%; the S&P 500 has declined 0.3%; and the Dow is down 0.4%. The consumer cyclical sector is a category of stocks that relies heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail. The category can be further divided into durable and non-durable sections. Durable cyclicals include physical goods such as hardware or vehicles, while non-durables represent items like movies or hotel services. The performance of consumer cyclicals is highly related to the state of the economy. They represent goods and services that are not considered necessities, but luxurious purchases. During contractions or recessions, people have less disposable income to spend on consumer cyclicals. When the economy is expanding or booming, the sales of these goods rise as retail and leisure spending increase.
The Consumer Cyclical sector (XLY) is currently lagging behind the overall market, down 0.4%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Skechers USA Inc (NYSE: SKX)||$964.4 million||+3.8%|
|WW Grainger (NYSE: GWW)||$13.33 billion||-3.6%|
|Tenneco Inc. (NYSE: TEN)||$1.67 billion||-3.5%|
|Michael Kors Holdings Ltd (NYSE: KORS)||$7.34 billion||+3.3%|
|Tempur-Pedic International Inc. (NYSE: TPX)||$1.62 billion||-3.2%|
|Visteon Corporation (NYSE: VC)||$2.14 billion||-3.1%|
|Under Armour Inc (NYSE: UA)||$5.39 billion||+2.7%|
Broker Summary: E-Trade Financial
Rising 3.8%, Skechers USA (NYSE: SKX) is currently trading at $20.03 per share. The company's volume is currently 1.3 million shares for the day, 1.3 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 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. SKX's gross profit margin is 39.9%. SKX's operating and net profit margins are both negative. This is because the company reported a net loss and net operating loss in the most recent quarter.
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/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. SKX's stock is trading for more than its book value with a P/B ratio of 1.17. 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. P/B value comparisons should be made among companies in the same industry rather than across industries.
SEE: Using The Price-To-Book Ratio To Evaluate Companies
Grainger (NYSE: GWW) is trading at $183.12 per share, down 3.6%. So far this morning, 541,655 shares have changed hands. This is 0.6 times its current daily average. The trading volume for a stock indicates the level of investor interest.
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. GWW has a gross profit margin of 45.4%. 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). GWW has an operating profit margin of 13.9%. 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 8.2%.
Valuation ratios allow the investor to make a quick determination as to a company's investment value. For investors primarily interested in the income a stock can generate, the dividend yield is an important determinant of how attractive a stock is. GWW's dividend yield of 1.7% is fairly low. A company with a low dividend yield may be a safer investment in the long run. It is important to remember that while a higher dividend yield is more attractive, all else being equal, a higher dividend yield can also indicate greater perceived risk.
SEE: Dividend Yield For The Downturn
After a decline of 3.5%, Tenneco (NYSE: TEN) has hit a share price of $26.52. So far today, the company's volume is 222,779 shares, which is less activity than yesterday's volume of 488,786 shares. Volume indicates the level of interest that investors have in a company at its current price.
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. TEN has a low gross profit margin of 16%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Operating margin for TEN is 5.2% and net margin is 1.9%, both low relative to its gross margin.
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. In a nutshell, the price/sales ratio shows how much Wall Street values every dollar of the company's sales. TEN's P/S ratio of 0.31 is fairly low. The lower the P/S ratio, the more reasonably price the stock, all else being equal. 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.
Michael Kors (NYSE: KORS) has moved up 3.3% and is currently trading at $39.62 per share. The company is currently trading a volume of 1.4 million shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting.
Tempur-Pedic International (NYSE: TPX) has fallen 3.2% and is currently trading at $24.72 per share. With 3.5 million shares changing hands so far today, the company's volume is 0.4 times the current three-month average. 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 TPX is 56.4%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. TPX's operating profit margin is 22.4%. Net profit margin is calculated by dividing net income by sales. Net margin is 15.4%.
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/earnings ratio is calculated by taking a stock price and dividing it by the earnings-per-share (EPS). The P/E ratio for TPX is 7.6, below the industry average of 27.46. A low P/E ratio may indicate that the market expects relatively slower earnings growth. A high P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap.
SEE: Investment Valuation Ratios: Price/Earnings Ratio
Slipping 3.1%, Visteon (NYSE: VC) is currently trading at $39.41 per share. So far today, the company's volume is 84,809 shares. This is 0.2 times the current daily average. 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. VC has a low gross profit margin of 12%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. Relative to its gross profit margin, VC's operating profit margin of -1.2% and net profit margin of 0.4% are low.
Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The debt-equity (D/E) ratio compares the total liabilities for a company to its total shareholder equity. VC has a low debt-equity ratio of 43%. Companies with low D/E ratios are more attractive to investors because they are better able to protect their business interests in times of decline. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.
After rising 2.7%, Under Armour (NYSE: UA) is currently trading at a share price of $106.06. So far today, 1.1 million shares have changed hands, while it was 1.2 million shares yesterday. 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 UA is 50.6%. 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. UA has an operating profit margin of 6.3%. Tracking net profit margin over time for a single company can be a valuable tool for seeing how a business is developing. The company's net profit margin is 6.4%.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. UA has a fairly low capitalization ratio of 4.6%. A very low capitalization ratio might be a sign that the company is stagnating and reducing the potential earnings for shareholders. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
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.