Friday, February 28, 2014

How To Read A Stock Profile Part 2 (Profitability)

     In this post we will continue learning how to read a stock profile, analyzing the Profitability.  Once again the stock is Yandex (YNDX) and the profile is from MarketWatch.

Gross Margin - Gross margin indicates how profitable a company is.  This value is the total revenue minus the costs of goods sold divided by the total revenue ((Revenue - Cost of Goods Sold) / Revenue).  Gross Margin is the measure of the total profit received from revenue.  YNDX retains $.6475 for every dollar of revenue generated.  Typically the higher the gross margin the better.  You will often see tech companies with a higher gross margin then compared to manufacturing companies.
Operating Margin - Operating margin indicates a companies operating efficiency.  This value is the operating income divided by the net sales (Operating Income / Net Sales).  Operating margin lets the investor know what proportion of the company's revenue is left over after paying costs (wages, materials, work area).  Typically the higher the operating margin the better.
Pretax Margin - Pretax margin determines the companies profit before tax and in dictates the company's profitability.  This value is the earnings before tax divided by the total sales (Earnings / Total Sales).  The higher the pretax margin the more profitable the company.
Net Margin - Net margin indicates a how effective a company is at controlling costs.  This value is the net profit divided by revenue (Net Profit / Revenue).  This value is important because you can determine how effective a company is at controlling internal costs compared to its profit.  A higher net margin is better.
Return On Assets - Return on assets tells you how profitable a company is based on its assets.  This value is the net income divided by the total assets (Net Income / Assets).   Return on assets may also be referred to as return on investment. 
Return On Equity - Return on equity tells you the rate of return.  This value is calculated by the net income divided by the shareholder's equity (Net Income / Shareholder's Equity).  As with other returns bigger is better.  This value is commonly used as the main measure of a stock's success.
Profitability Summary

     It is important to understand the profitability of a stock when comparing similar companies.  Remember that with profits bigger is better, however ensure you look at the valuation (see part 1) of a company also to see how their stock value is corresponds with their profit.


Wednesday, February 26, 2014

How To Read A Stock Profile (Part 1 - Valuation)

     Many new investors get scared of or do not understand the technical side of stocks and investing.  On earnings reports and stock overviews you hear many terms regarding the company's finances and estimates regarding their future. In this post I will discuss the basics of the technical terms to give you a better understanding of what to look for in a company.  This example will use the profile of the stock Yandex (YNDX) which I have previously covered and the profile is taken from MarketWatch on 26 February 2014.


P/E (Price to Earnings) - The price of a stock divided by its earnings per share (EPS).  Yandex had an EPS of $1.21 and the current stock value is $37.76 resulting in a P/E of 31.2.  This value is larger then the value above because Yandex did not include extraordinary items (windfalls, write-downs...).  Understand that a stock P/E fluctuates daily as the stock price changes.  Typically if a stock has a high P/E you can expect large growth however the investment is riskier.  Stocks with a low P/E are less risky and have slow steady growth along with a better chance of the company paying dividends to keep investors.  Understand that the lower the P/E the better the value because you are buying more earnings power.

P/S (Price to Sales) - The total market value of a stock divided by total sales for the past year.   If a stock is $10 a share and they have 100 total shares the total market value of the stock is $1000.  If in the year they sold $4000 worth of product their P/S would be .25.  P/S tells you as an investor how much you are paying for each dollar of sales by the company.  This value is good to look at for new companies or companies that are not turning a profit.

Price to Book - This value is the ratio of a stocks price compared to its liquid value (office, computers, paper, cars...).  If the stock is $10 a share and the liquidation value of its assets was $1000 the Price to Book would be .01.  If the Price to Book ratio of a stock is less than 1 you are essentially paying more for a stock than its liquidation value is worth and that if a stock goes bankrupt you should get your money back.  If the value is greater than 1 do not expect your money back.  This value is not used often in investing however be aware of new stocks or old companies that are breaking down.

Price to Cash Flow - This value is the ratio of a stocks price compared to the cash from sale left over after company expenses are paid.  If a stocks value is $10 and the company made $5000 in sales and after expenses had $100 left over the Price to Cash Flow is .1.  This value tells you the investor how much you are paying per dollar of cash left after operating costs.  A low Price to Cash Flow is a good indicator of positive returns.

Enterprise Value to EBITDA - This value is considered the most important when looking at the likely hood of a stock to increase over time. Enterprise Value is the complete picture of a company's worth and the value someone would need to pay to buy them out.   EBITDA (earnings before interest, taxes, depreciation, and amortizations) is a value that does not allow companies to fudge their numbers or representation of their earnings.  Enterprise Value to EBITDA ultimately compares the company's value to how much profit is produced so a low EV to EBITDA is better.  If you see EBITDA to EV then a higher number is preferred.

Enterprise Value to Sales - This ratio is the value of the companies overall worth compared to its sales.  This value is similar to Price to Sale ratio however it is considered more accurate because it incorporates a company's debt and market capitalization.  Typically a lower value is preferred.

Total Debt to Enterprise Value - This ratio is the value of the companies current debt compared to its overall worth.  Investors prefer this value to be zero because companies that have debt must eventually pay them off causing future profits to be reduced.  This value is an indicator of such.

Valuation Summary

     There is no full-proof method of picking a stock based on its technicals however you can gage a stock on them.  Below is a quick-look of what you should look for.

1. Low EV to EBITDA or High EBITDA to EV
2. Low Price to Cash Flow
3. Low Price to Sales
4. Low Price to Earnings for slow growth, High for quick growth

Tuesday, February 25, 2014

25-February-2014 Market News

Here are some of today's highlights

First Solar Shares Fall
     First Solar shares fell 12% to $50.81 in heavy volume after the company reported earnings of 89 cents a share on revenue of $768.4 million. Analysts surveyed by FactSet expected fourth-quarter earnings of 98 cents a share on revenue of $973 million.  Full Article

Zagg Up After Earnings
     "We are pleased to have finished the year with a strong fourth quarter, our third highest in terms of net sales in the company's history. We also launched our first rugged case under the ZAGG brand, and experienced growth in tablet keyboard sales," said Randy Hales, president and CEO of ZAGG Inc. "2013 was a reset year in which we focused on building a solid foundation for ZAGG moving forward. We made changes in sales, product management, product development, marketing, distribution, operations, customer service, and key leadership roles. All of this was done to position the company to win share strategically and return to growth in the second half of 2014 with well-designed products, clear brand positioning, focused sales execution, and investment in our distribution channels."  Full Article 

Zagg Offers $10 Million Stock For Repurchase
     ZAGG Inc, a leading mobile device accessories company with a brand portfolio that includes ZAGG and iFrogz, announced today the Board of Directors has authorized a $10 million share repurchase. The company paid off the balance on the Line of Credit during the first quarter of 2014, and will use cash from operations to fund the share repurchase in 2014.  Full Article

Morgan Stanley Upgrades Tesla
     Analysts at Morgan Stanley raised their price target on Tesla Motors Inc. to $320 per share from $153, citing potential for the electric auto-maker to disrupt industries outside of its automotive niche, such as batteries and autonomous vehicles. The investment bank has an overweight rating on the stock. The hike in its price target comes amid expectations that Chief Executive Officer Elon Musk will reveal details of his planned "gigafactory" battery plant this week. Analyst Adam Jonas wrote that, "Tesla is an extremely ambitious company for whom flooding the market with fun-to-drive EVs and giving competitors a headache might not be the endgame. Tesla's limited addressable market, a long-time bear thesis on the stock, appears well up for grabs here." Tesla stock rose 6.1% to $231.00 premarket, after closing at a record in the previous session.  Full Article

Facebook Says WhatsAPP Is Worth More Than $19 Billion
     Facebook closed up 3.19% on Monday with nearly 77 million shares traded. The company's Chief Executive Officer Mark Zuckerberg said WhatsApp Inc., which his social-media company agreed to buy last week, was "worth more than $19 billion." The mobile-messaging startup was "a great fit for us," Zuckerberg said at the Mobile World Congress in Barcelona this past weekend. "Already almost half-a-billion people love using WhatsApp for messaging and it's the most engaging app we've ever seen exist on mobile by far."  Full Article

China's Iron Ore Imports Will Rise (VALE)
     China's dependence on foreign iron ore likely will reach new records, according to a top state industry official, which could help underpin slumping global prices but may not provide much of a boost for the world's largest global miners.  Full Article

Friday, February 21, 2014

Understanding Investment Profit

     The ultimate goal for an investor is to make a profit, however there are many different way to value that profit depending.  This article will look at different profit valuations money managers, firms and other investors use along with some of my preferred measuring values.  First we will go over some common terms.  These terms will not cover any investment fees, splits, dividends or other variables.

Profit ($ Value) - How much money you gained from your initial investment.  (Profit = Sell Value - Investment Value)

Return on investment (% Value) - A percentage of your return based on your initial investment compared to the current total for the sale of the stock.  (ROI = Profit / Investment * 100) 

Example:  You invest $500 dollars in a stock at $10.00 per share for 50 shares.  You sell the stock at $20.00.  Your profit is $500 because (($20 * 50) - $500 = $500).  Your return on investment was 100% because ($500 / $500 * 100 = 100%).

     This example is great because the investor doubled his money, however these values do not tell the whole story such as how long did he/she hold the stock.  To analyze this aspect we can use the terms and formulas below.

Profit per day ($ Value) - How much money you gained per day based on your initial investment.  (PPD = (Sell Value - Investment Value) / Days Invested).

Percent profit per day (% Value) - A percentage gain by day based on your initial investment compared to the current sale total.  (ROI = (Profit / Investment * 100) / Days Invested) 

Example 1: You invest $500 dollars in a stock at $10.00 per share for 50 shares and hold it for 30 days. You sell the stock at $20.00. Your profit per day is $16.66 because ((($20 * 50) - $500) / 30 = $16.66). Your return on investment was 3.33% because (($500 / $500 * 100) / 30 = 3.33%).  So your PPD is $16.66 and your PPPD is 3.33%.

Example 2: You invest $500 dollars in a stock at $10.00 per share for 50 shares and hold it for 300 days. You sell the stock at $20.00. Your profit per day is $1.66 because ((($20 * 50) - $500) / 300 = $16.66). Your return on investment was .33% because (($500 / $500 * 100) / 300 = .33%). So your PPD is $1.66 and your PPPD is .33%.

     This example demonstrates how using the length of your investment to measure your profit impacts your view on your investments's return rate.  This next example will demonstrate how using this knowledge of understanding investment profit can and should effect your investment strategy.  Please remember that investment fees and other variables are not taken into account, though they would have marginal impact.

Final Example:  Investor 1 invests $500 in a stock for one year and that stock value doubles resulting in a Profit of $500 and a ROI of 50%. Therefore, for the year, investor 1's investment profit is below.

Profit: $250      ROI: 50%     PPD: $.68    PPPD: .13%

Investor 2 invests $500 in a stock for one year and that stock value increases 10% in 31 days. His current investment profit for this stock is.
Profit: $50     ROI: 10%     PPD: $1.61    PPPD: .32%
Investor 2 takes his gains and invests $550 in a stock and that stock value increases 10% in 62 days. His current investment profit for this stock is.
   Profit: $55      ROI: 10%      PPD: $.87     PPPD: .16%
Investor 2 takes his gains again and invests $605 in a stock and that stock value increases 20% in 10 days. His current investment profit for this stock is.
Profit: $121         ROI: 20%     PPD: $12.10    PPPD: 2%
Investor 2 takes his gains again and invests $726 in a stock and that stock value increases 10% in 262 days. His current investment profit for this stock is.
Profit: $72.60        ROI: 10%    PPD: $.27      PPPD: .03%
     Let's analyze this example.  Investor 1 did extremely well. His stock increased by 50% resulting in a profit of $250 for a total of $750 at the end of the year.  Investor 2 did not his a big stock but managed to hit some small spikes with his/her biggest gain of 20% which resulted in his/her total profit of $298 for a total of $798 at the end of the year. 
     I show this example so that you the investor is aware of how your money can work for you in the market.  Often time investors are told to pick a stock and check on it every couple of weeks, months or even years.  It is advertised that over this time your return on invest is most likely going to increase and most investors are content with a 50% profit over a year however you should not be.  Understand PPD and PPPD and look at my 2013 portfolio to see how I used these profit calculations to maximize my returns throughout the year.  

Tuesday, February 18, 2014

First Solar Sale at $55.00

If you are investing like me you made 7.25% today on the sale of First Solar.  The stock jumped more than expected today and hit our limit.  The stock was held for 35 days which equates to .2% profit per day.

Friday, February 14, 2014

Why "Invest Like Me"?

     The blog "Invest Like Me" was started as a way to show friends and other amateur investors my portfolio and how I trade on the stockmarket.  Often times many investment bloggers and professionals give advice but don't really tell you at what price to buy/sell or ask you to pay to see their portfolio or be added to their e-mails.  I am looking to break that. I have been trading stocks for three years and have been very succesful in my returns.  Though the ultimate goal of investing is you make money, I take it as a personal challenge each year to beat myself in three categories that I will cover in a later post, overall profit, profit-per-day, average percent return.  To maximize the use of this blog first check my current portfolio to see which stocks I am invested in and my current plan for each.  Then follow me on twitter at @BlogILM for stock updates and news.

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