Monday, May 07, 2012

Dollar Woes

For the stock market game dollar woes, I've been looking into a number of different metrics into what to invest on. I went to's stock screener, and set the following:

Price to Earnings ratio: 0-15
Price to Sales ratio: 0-11
Earnings per Share: 1.64-max
Current Ratio: 1.88-max
Cash per Share: 8.2-max
Total debt / assets in the recent year: 0-50%
Total debt / equity in the recent year: 0-81%
Return on Investment: 9.2-max
Return on Equity: 9.2-max
Net Profit Margin: 13.25%-max
Operating Margin: 8.74%-max

I didn't derive these numbers using any specific formula, the Google stock screener lists a curve with its numbers and I chose the upper 50% of the curve. Without making any industry comparisons these numbers are fairly useless on their own, but I was hoping that with the combined values I could find something relatively undervalued.

The price to earnings and price to share ratios reflect that sentiment - I want low on both. The current ratio and cash per share ratio are both growth indicators and safety nets - high ratios of each means that the company is very liquid, which means more capital to invest or to catch the company if an emergency happens. The debt / assets and debt / equity reflect the overall makeup of the company (assets = debt + equity), as well as how well the company manages its debt. To compare on that last point I also included return on investment, return on equity, and earnings per share.

Lastly, I wanted a company that was operating fairly well in the black. I included net profit margin because it's the bottom line, but also operating margin because I wanted a company that not only did well in net profits, but was operating at a profit in case the other income streams dried up.

Surprisingly, I had 19 companies pop up (I expected only a handful). Some of these companies barely made my requirements on almost all counts, so I looked at the companies that had exceptional areas.

ASM International NV (ADR) (NASDAQ:ASMI) stood out with a 0.99 price to sales, the lowest of the group. It also had one of the lower EPS at 2.4, and cash / share at 9.27. It had an operating margin of almost 20%, and a net profit margin of 17.2%, but this is still some of the lower among the list that was left. With the 4th highest P/E, at 14.48, I'll probably either pass on this one or invest only a little. The price to sales is a good comparison over years, which I don't have at the moment, and all of the other metrics seem somewhat weak.

Terra Nitrogen Company, L.P. (NYSE:TNH) stood out like a clown in the jungle with the highest P/E and P/S ratios at 15.38 and 5.91 respectively, but also had the highest operating and net profit margins by almost double second place at 63.57% and 63.59%. I need to research why the profit margin is larger than the operating margin, and the actual amount of debt (google reports 0 for debt/equity and debt/assets). With a return on investment of 211%, a return on equity of 127%, and a earnings per share of a whopping 15.51, I can understand why this one might be commanding the price it is. Feels like I need more research on this one before I pull the trigger, but also of note is that it has the third highest current ratio at 6.94, so it's a pretty liquid company.

Franklin Resources, Inc. (NYSE:BEN) is one of the larger companies that got pulled, but it seems to have a lot of cash on hand with a cash / share of over 30. It also is one of the larger earnings per shares (#2 behind Terra Nitrogen, with 8.68) and operating / net profit margins (36.45% and 25.26%).

Diamond Offshore Drilling, Inc. (NYSE:DO) had one of the lower P/E ratios (10.06), higher EPS (6.45), with a high-end current ratio (4.66). While it's not getting the best return on investment, and has higher debt ratios than most of the other companies, it's still pulling an operating margin of 36.58% and a net profit margin of 27.31%

Fisher Communications, Inc. (NASDAQ:FSCI) had my lowest P/E pulled at 7.24. It also had one of the lowest price / sales of 1.67, but what's somewhat worrying is a current ratio of 2.01 with cash / share at 19.98. This company is one of the smaller capitalized companies that I pulled, which could explain the high cash / share, but this potentially means that most of the company's current assets are cash. This isn't necessarily bad, unless inventory levels or other current assets like collectibles should be higher and just aren't. It depends on the nature of the business - the business has a higher debt / asset and debt / equity ratio than most of the companies I pulled, and a moderate ROI and ROE. Operating margin is 37.29%, but net profit margin is only 21.87%. Given the smaller capitalization I'm expecting this to be a smaller company, so I wouldn't expect large taxes. This could mean the company pays out a significant amount in interest or has significant fixed assets that are depreciating, which would result in the lower net income. I also need to research to see if the company perhaps paid out a large settlement that could also result in the lower net income.


Ryan said...
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Ryan said...

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