The morning has been bad for the market. The Nasdaq has declined 0.1%; the S&P 500 is trading down 0.1%; and the Dow has fallen 0.2%. 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.
Despite a bad day for the market overall so far, the Consumer Cyclical sector (XLY) is up 0.4% and its biggest movers are currently:
|Company||Market Cap||Percentage Change|
|Mattel (Nasdaq:MAT)||$10.57 billion||+9.3%|
|Select Comfort Corp. (Nasdaq:SCSS)||$1.31 billion||-8.3%|
|Tesla Motors Inc (Nasdaq:TSLA)||$3.78 billion||-4.1%|
|Hasbro (Nasdaq:HAS)||$4.19 billion||+3.2%|
|Under Armour Inc (NYSE:UA)||$4.38 billion||+3.1%|
|Tata Motors Limited (ADR) (NYSE:TTM)||$11.54 billion||-2.7%|
|Titan International, Inc. (NYSE:TWI)||$950 million||-2.6%|
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After rising 9.3%, Mattel (Nasdaq:MAT) is currently trading at a share price of $33.93. The company is currently trading a volume of 6.9 million shares. A stock's volume conveys how excited investors are about it. 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 MAT is 53%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. Operating profit margin for MAT is 3.1%. 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. The company's net profit margin is 12.2%.
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. 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. Compared to the industry average of 1.49, MAT's P/E ratio of 14.4 is quite high. 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 P/E ratio indicates a stock that is expensive, while a low P/E ratio indicates a stock that is cheap. SEE: How To Use The P/E Ratio And PEG To Tell The Future Of A Stock
Currently trading at $21.19 per share, Select (Nasdaq:SCSS) has fallen 8.3%. The company's volume is currently 1.7 million shares for the day, 1.6 times the current daily 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. There are many tools investors can use to evaluate a stock, including margins. Margins, quite simply, are earnings expressed as a ratio, or a percentage of sales, and this allows investors to compare the profitability of different companies, while net earnings, which are presented as an absolute number, cannot. SCSS' gross profit margin is 64.8%. SCSS has an operating profit margin of 13.1% and a net profit margin of 8.2%, both high compared to its gross profit margin.
Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. 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. SCSS' stock is trading for more than its book value with a P/B ratio of 7.44. 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: How Buybacks Warps The Price-To-Book Ratio
Tesla Motors (Nasdaq:TSLA) is currently trading at a share price of $34.49, a 4.1% decline. The company is trading at a volume of 1.1 million shares. Trading activity is down from yesterday when 1.7 million shares changed hands. In technical analysis, trading volume is used to determine the strength of a market indicator. 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. TSLA has a gross profit margin of 38.5%. 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. TSLA has a negative operating margin of -294.2%. This is because the company reported a 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. A price/sales ratio is derived by dividing stock market price by company sales. TSLA has a high P/S ratio of 21.16. 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.
Hasbro (Nasdaq:HAS) has risen 3.2% and is currently trading at $33.38 per share. So far today, the company's volume is 1.1 million shares, 0.8 times its current three-month average. Volume is an important indicator because it indicates how significant a price shift is. Margin ratios highlight companies that are worth further examination. The gross profit margin for HAS is 51.6%. 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. HAS has an operating profit margin of 2.4%. Net profit margin is a good ratio for determining how a company is performing. The company has a net profit margin of 8.6%.
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 easy-to-calculate debt ratio is helpful to investors looking for a quick take on the leverage for a company. The debt ratio for HAS is 64.1%, which is relatively high. 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.
Under Armour (NYSE:UA) has increased to a share price of $48.49, a 3.1% rise. So far today, the company's volume is 1.5 million shares. 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. UA's gross profit margin is 50.6%. 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. Operating profit margin for UA is 6.3%. 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. Net margin is 6.4%.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. As with most ratios, comparisons of company price/earnings to growth ratios (PEG ratios) are most appropriate for similar companies. UA's PEG ratio is 2.23. 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.
Tata Motors Limited (NYSE:TTM) is down 2.7% to reach $20.13 per share. At 637,773 shares, the company's volume so far today is 0.5 times its current daily average. High volume indicates a lot of investor interest while low volume indicates the opposite. 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. TTM has a gross profit margin of 30.5%. Compared with its gross profit margin, TTM's operating profit margin of 11.5% and net profit margin of 5.6% are low.
Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. Price/earnings ratios (P/E ratios) provide a measure of the relative value of a stock. TTM's P/E ratio of 17.5 is above the industry average of 10.14. Generally speaking, the higher the P/E ratio, the higher the market expectations for a company's future performance. To determine the P/E ratio, an investor divides the market price of the stock by the earnings-per-share (EPS) of the stock. SEE: How To Find P/E And PEG Ratios
Titan International (NYSE:TWI) has fallen 2.6% and is currently trading at $21.90 per share. The company's volume for the day so far is 482,223 shares. This is below yesterday's volume of 1.1 million shares. 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. 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. TWI has a low gross profit margin of 18.9%. Since gross profit margins tend to stay stable, sudden changes may indicate financial fraud, accounting irregularities or problems in the business. Operating margin for TWI is 12.7% and net margin is 5.8%, both low relative to its gross 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-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. TWI has a D/E ratio of 72%. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.
The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. It is important to weigh current activity against historical performance when making any investment decisions. Keep in mind that all these ratios should be compared against historical numbers and industry information in order to get a more complete picture.