The Nasdaq has fallen 0.2%, the S&P 500 has declined 0.3% and the Dow is trading down 0.4% on a bad morning for the market.The Oil and Gas Operations sector (DIG) is down 0.9%, underperforming the market overall. The current biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Solazyme Inc (Nasdaq: SZYM)||$670.8 million||+5%|
|Clayton Williams Energy, Inc. (Nasdaq: CWEI)||$701.2 million||-4.2%|
|Newfield Exploration (NYSE: NFX)||$3.94 billion||-3.8%|
|Matador Resources Co (NYSE: MTDR)||$555.1 million||+3.7%|
|Ferrellgas Partners, L.P. (NYSE: FGP)||$1.36 billion||+3.7%|
|Energy XXI (Bermuda) Limited (Nasdaq: EXXI)||$2.3 billion||-3.3%|
|Concho Resources Inc. (NYSE: CXO)||$9.6 billion||-2.9%|
Broker Summary: TD Ameritrade Thinkorswim
Solazyme (Nasdaq: SZYM) is at $11.67 per share after an increase of 5%. So far this morning, 202,976 shares have changed hands. This is 0.5 times the current daily average. Volume is an important indicator because it indicates how significant a price shift is.
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. SZYM has a negative operating margin of -126.2%. This is because the company reported a net operating loss in the most recent quarter.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. 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. The debt-equity ratio of 8% is relatively low. This shows that the company's assets are financed primarily through equity. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
At $55.23, Clayton Williams Energy (Nasdaq: CWEI) has slipped 4.2%. This morning, 29,907 shares have been traded, which is less activity than yesterday's volume of 77,094 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.
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 CWEI is 67.1%. The operating profit margin is a rough measure of the operating leverage a company can achieve in the conduct of the operational part of its business. Operating profit margin for CWEI is 24.6%. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. Net margin is 25.8%.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The capitalization ratio is calculated by dividing long-term debt by the sum of long-term debt and shareholders' equity. CWEI has a capitalization ratio of 64%, which is on the high end. 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.
Currently trading at $28.08 per share, Newfield Exploration (NYSE: NFX) has fallen 3.8%. The company's volume for the day so far is 654,825 shares. If a stock price makes a big move up or down, volume lets us know the significance of that move.
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. NFX has a gross profit margin of 68.2%. A company's operating margin is calculated by dividing operating income by revenues. NFX has an operating profit margin of 29.1%. 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 profit margin for the company is 25.8%.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. 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. NFX's stock is trading for less than its book value as can be seen from it's P/B value of 0.94. 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. P/B has its shortcomings but is still widely used as a valuation metric, more relevant for use by investors looking at capital-intensive or finance-related businesses, such as banks; book value does not carry much meaning for service-based firms with few tangible assets.
SEE: How Buybacks Warps The Price-To-Book Ratio
Matador (NYSE: MTDR) has increased to a share price of $10.37, a 3.7% rise. The company's volume is currently 45,684 shares for the day, 0.4 times its 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. MTDR's gross profit margin of 87.5% is on the high side. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. MTDR's operating margin of 24.3% and net margin of 25.6% are high relative to its gross margin.
A company's value as an investment is more easily 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. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. MTDR's P/E ratio of 32.8 is above the industry average of 19.65. This could mean that the market is expecting big things over the next few months or years. 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: The P/E Ratio: A Good Market-Timing Indicator
After an increase of 3.7%, Ferrellgas Partners (NYSE: FGP) has reached a current price of $17.88. So far today, the company's volume is 252,639 shares. This is 0.7 times the average daily volume. The trading volume for a stock indicates the level of investor interest.
Margin analysis is a great way to understand the profitability of companies. FGP has a low gross profit margin of 13.4%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. Compared with its gross profit margin, FGP's operating profit margin of 7.4% and net profit margin of -1.3% are low.
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. The dividend yield is calculated by dividing a company's dividends per share by its stock price. Dividend yield for FGP is 11.6%, which is fairly high. This is good news for income investors as the payout could be high. 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: Due Diligence On Dividends
Falling 3.3%, Energy (Nasdaq: EXXI) is currently at a share price of $28.16. The company's volume is currently 470,093 shares for the day, lighter than yesterday's volume of 715,601 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.
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. EXXI has a gross profit margin of 72.8%. Net profit margins are those generated from all phases of a business, including taxes. The company has a net profit margin of 13.1%, high compared to its gross profit margin. A high net profit margin means a company is able to control its costs that buy goods and services at prices significantly higher than it costs to produce or provide them. 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. EXXI's operating profit margin is 35.8%.
Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. 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 EXXI is 1.64, which is relatively high. This could be a good sign if the share price increases. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
Concho Resources (NYSE: CXO) is currently trading at a share price of $89.58, a 2.9% decline. So far today, the company's volume is 287,792 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 ratios highlight companies that are worth further examination. CXO has a gross profit margin of 81.3%, which is on the high end. This means that the company will have a lot of money left over to spend on other business operations, such as research and development or marketing. CXO has an operating profit margin of 17.2% and a net profit margin of 28.4%, both high compared to its gross profit 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 debt ratio is calculated by dividing total liabilities by total assets. CXO has a debt ratio of 58.8%. 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.
The Bottom Line The nature of the market is such that stocks will have good days and bad days. Daily stock performance should be weighed against historical performance and put in context of the market overall. 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.