The market is having a bad day so far: the Nasdaq has fallen 0.2%; the S&P 500 is down 0.3%; and the Dow has decreased 0.4%. The transportation sector is a category of stocks relating to the transportation of goods or customers. It is made up of airlines, railroads and trucking companies. The performance of the transportation sector is sensitive to the price of oil. Because operations revolve around the use of vehicles, fuel prices represent a significant cost to transportation companies. As the price of oil rises, transportation companies will be expected to earn less. Inversely, these companies do well when the cost of fuel decreases.The Transportation sector (IYT) is down 0.4%, underperforming the market overall. The current biggest movers in the sector are:
|Company||Market Cap||Percentage Change|
|Spirit Airlines Incorporated (Nasdaq: SAVE)||$1.31 billion||-7.1%|
|TAM S.A. (ADR) (NYSE: TAM)||$3.45 billion||-2.8%|
|United Continental Holdings Inc (NYSE: UAL)||$7.8 billion||-2.7%|
|China Eastern Airlines Corp. Ltd. (ADR) (NYSE: CEA)||$3.46 billion||+2.5%|
|Golar LNG Partners LP (Nasdaq: GMLP)||$689.9 million||-2.2%|
|AMERCO (Nasdaq: UHAL)||$1.69 billion||+2%|
|Teekay Corporation (NYSE: TK)||$1.89 billion||-1.9%|
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Spirit Airlines (Nasdaq: SAVE) is trading at $17.99 per share, down 7.1%. This morning, the company's volume is 874,876 shares. This is 1.2 times its average daily volume. 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 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. SAVE's gross profit margin is 43%. The operating margin ratio is calculated by dividing operating income by sales and provides a measure of what percentage of a company's revenues is available to pay its fixed costs. SAVE has an operating profit margin of 21.4%, which is low relative to its gross profit margin. Ideally, a company's profit margin should be stable or rising; declining profit margin should be cause for concern or further investigation. The company's net profit margin is 8.1%.
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 price/earnings to growth (PEG) ratio is calculated by dividing the price/earnings ratio by growth in earnings-per-share; the lower the PEG ratio, the more reasonably valued the security. SAVE has a PEG ratio of 0.46. 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.
TAM S.A (NYSE: TAM) is currently trading at a share price of $21.45, a 2.8% decline. This morning, 179,139 shares have been traded, below yesterday's volume of 462,051 shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is.
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 TAM is 51.3%. TAM'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 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. While measuring a price/earnings ratio (P/E ratio) is a popular valuation technique, the measure cannot be calculated for companies without earnings, so some investors analyze the price/sales ratio. The P/S ratio for TAM is 0.53, which is relatively low. A company with a lower P/S ratio is generally considered more attractive, since investors are paying less for each dollar of sales. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.
At $22.86, United Continental Holdings (NYSE: UAL) has slipped 2.7%. This morning, the company is trading a volume of 1.6 million shares. Volume is used to evaluate how meaningful the price movement of a stock is.
Margin ratios highlight companies that are worth further examination. UAL has a gross profit margin of 34.4%. 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. UAL has an operating profit margin of 0.7%. Net profit margin examines how effectively a company is managed and how profitable it is by looking at how much of each dollar in revenues ultimately hits the company's bottom line. Net margin is 1.6%.
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 debt ratio shows the proportion of assets that a company is financing through debt. UAL has a debt ratio of 96%, 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. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.
China Eastern Airlines Corp. Ltd (NYSE: CEA) is currently trading at $15.73 per share, a 2.5% increase. At 13,542 shares, the company's volume so far today is 0.2 times its average over the past three months. Volume is an important indicator because it indicates how significant a price shift is.
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. The gross profit margin for CEA is 59.7%. 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. CEA has a negative operating margin of -1%. This shows that the company reported a net operating loss in the most recent quarter. Net profit margins are those generated from all phases of a business, including taxes. With a net profit margin of 4.3%, the company has a high one compared to its gross profit margin. Investors in companies with high profit margins can be confident that even if sales dip slightly, profits will remain strong.
Investment valuation ratios provide investors with an estimation, albeit a simplistic one, of the value of a stock. The debt-equity (D/E) ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. CEA's D/E ratio of 186% is on the high side. Generally, a high D/E ratio means that the company may have difficulty generating enough cash to pay off its debts. The D/E ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities.
Currently trading at $29.17 per share, Golar LNG (Nasdaq: GMLP) has fallen 2.2%. So far this morning, 4,690 shares have changed hands. This is 0.1 times the average daily volume. In technical analysis, trading volume is used to determine the strength of a market indicator.
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. GMLP has a relatively high gross profit margin of 83.4%. This may indicate that the company is over-pricing its products and/or services. A company's operating margin is calculated by dividing operating income by revenues. With an operating profit margin of 62.6%, GMLP has a low one relative to its gross profit margin. Net profit margin comes as close as possible to summing-up in a single figure how effectively managers run the business. The company has a net profit margin of 36.9%.
It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. 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 GMLP is 96%, which is fairly high. A company considered too highly leveraged (too much debt) may find its freedom of action restricted by its creditors and/or have its profitability hurt by high interest costs. 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.
AMERCO (Nasdaq: UHAL) has moved up 2% and is currently trading at $87.64 per share. At 17,694 shares, the company's volume so far today is lighter than yesterday's volume of 97,997 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 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.
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. UHAL has a gross profit margin of 44%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. Operating profit margin for UHAL is 11.1%. 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 8.2%.
Investment valuation ratios can be very useful in determining the value of a stock, but it is very important to keep in mind that while some financial ratios have general rules (or a broad application), in most instances it is a prudent practice to look at a company's historical performance and use peer company/industry comparisons to put any given company's ratio in perspective. One of the favorite tools of many value investors is analyzing price/book value ratios, as it provides a measure of the underlying value of a company's assets as compared to the valuation of its equity. The P/B ratio for UHAL is 1.66, indicating that the stock is trading for more 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. 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: Using The Price-To-Book Ratio To Evaluate Companies
Teekay (NYSE: TK) has decreased to $27.02 per share, a 1.9% fall. So far today, the company's volume is 171,554 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.
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. The gross profit margin for TK is 45.7%. 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. The company's net profit margin is negative. A negative net profit margin means the company spent more money than it made. The operating profit margin indicates how much EBIT is generated per dollar of sales. TK's operating profit margin is 15.7%.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. Dividend yield is a way to measure how much cash flow you are getting for each dollar invested in an equity position - in other words, how much "bang for your buck" you are getting from dividends. Dividend yield for TK is 4.6%. To calculate the dividend yield, divide the level of dividends by the stock price; the higher the yield, the more attractive the security.
SEE: Guide To Stock-Picking Strategies: Income Investing
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. 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.
- gross profit margin