The market is having a bad day so far. The Nasdaq has slipped 0.2%; the S&P 500 has fallen 0.3%; and the Dow has declined 0.4%. 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 0.8%, and its current biggest movers are:
|Company||Market Cap||Percentage Change|
|Central Pacific Financial Corp. (NYSE: CPF)||$523 million||+4.2%|
|Oaktree Capital Group LLC (NYSE: OAK)||$5.75 billion||-3.3%|
|Bank Of The Ozarks Inc (Nasdaq: OZRK)||$1.02 billion||-3.1%|
|Erie Indemnity Company (Nasdaq: ERIE)||$3.37 billion||-3%|
|China Life Insurance Company Ltd. (ADR) (NYSE: LFC)||$64.97 billion||+2.7%|
|State Street (NYSE: STT)||$20.6 billion||+1.8%|
|Altisource Portfolio Solutions S.A. (Nasdaq: ASPS)||$1.51 billion||+1.8%|
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Central Pacific (NYSE: CPF) has risen 4.2% to hit a current price of $13.05 per share. So far today, the company's volume is 37,939 shares, 0.7 times its current daily average. If a stock price moves on high volume, this means that the change is a significant one.
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 P/E ratio has been used for ages by analysts and still remains one of the most relevant pieces of stock valuation. CPF's P/E ratio of 13.2 is under the industry average of 14.44. A low P/E ratio may indicate that the market expects relatively slower earnings growth. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio.
SEE: Understanding The P/E Ratio
Slipping 3.3%, Oaktree Capital (NYSE: OAK) is currently trading at $36.86 per share. This morning, the company is trading a volume of 69,120 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 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. OAK has a gross profit margin of 41.3%. OAK'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 allow the investor to make a quick determination as to a company's investment value. The capitalization ratio measures the debt component of the capital structure, or capitalization of a company (i.e., the sum of long-term debt liabilities and shareholder equity) to support operations and growth. The capitalization ratio for OAK is 76.6%, which is fairly high. A high capitalization ratio is not necessarily bad since higher financial leverage can increase the return on a shareholder's investment. A low level of debt and a healthy proportion of equity in a company's capital structure is an indication of financial fitness.
Bank Of The Ozarks (Nasdaq: OZRK) is trading at $28.53 per share, down 3.1%. At 61,207 shares, the company's volume so far today is more than yesterday's 57,713 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.
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. 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. OZRK's P/B ratio of 2.23 shows that its share price is higher than its book value. 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. 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: Using The Price-To-Book Ratio To Evaluate Companies
Erie Indemnity (Nasdaq: ERIE) is currently trading at a share price of $68.67, a 3% decline. So far today, 36,330 shares have changed hands. This is 0.7 times the average volume over the last three months. 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. The dividend yield is measured by taking the annual dividends per share and dividing that number by the stock price. ERIE's dividend yield is 3.1%. Just as with the yield on a bond or certificate of deposit, the higher the dividend yield, the higher the return to the investor.
SEE: Guide To Stock-Picking Strategies: Income Investing
Rising 2.7%, China Life Insurance Company Ltd (NYSE: LFC) is currently trading at $35.41 per share. So far today, the company's volume is 166,033 shares, 0.3 times the average daily volume. 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.
Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The price/sales ratio measures a company's stock market value by its total revenues or alternatively, a company's price per share by its revenue per share. LFC has a high P/S ratio of 1.28. This could be a good sign if the share price increases. It is important to keep in mind when looking at the P/S ratio that just because a company is generating revenues, this does not mean that the company is profitable, and in the long run, profits drive stock prices.
State Street (NYSE: STT) has increased to a share price of $42.92, a 1.8% rise. The company is currently trading a volume of two million shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting.
When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. The price/earnings to growth (PEG) ratio can reveal value what price/earnings (P/E) ratios alone may not so that if a company has a high P/E ratio (an indication that its stock is overpriced) but its earnings are growing very quickly, the PEG ratio may reveal that the company is actually fairly valued, or perhaps even a bargain. STT's PEG ratio of 1.16 is in line with the industry average. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.
Altisource Portfolio Solutions (Nasdaq: ASPS) has risen 1.8% and is currently trading at $66.11 per share. This morning, 33,783 shares have been traded, while it was 177,610 shares yesterday. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is.
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. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. The debt ratio for ASPS is a low 28.1%. A low debt ratio means the company has more available cash flow. 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 On any given day, a particular stock may see positive or negative change in its share price. 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.