Posts Tagged: profit margins

The Rich Are Getting Richer

Profit margins have been steadily rising for huge companies, but margins have been stagnant or falling for smaller companies. Clearly, the large are getting richer. But viewed a slightly different way we see an even more exaggerated trend: the rich are getting richer. Forget market cap for a moment. Instead of sorting stocks on their size…

Tiny Margins for Tiny Companies

The U.S. market’s profit margin remains very high, but smaller stocks are suffering. While margins for the largest companies have remained well above their long-term averages, margins for the 40% of stocks in the market with smaller market caps have current margins well below their long-term average. This divergence highlights a broader key point: small caps provide…

What Drives the Market’s Return on Equity?

Earning a high return on equity is one of the primary reasons to do business. Managers of (and investors in) companies want to earn the highest return on their equity as possible, and sustain this high rate of return over as long a period as possible. Some sectors of the market, like consumer staples, have…

The Market’s Return on Equity

“Jesse Livermore” has a thorough and convincing new article in which he argues that return on equity (ROE) matters more than profit margins, because it is high ROEs—not high profit margins—that lure new entrants into a market and drive competition.  As Livermore says, “Corporations seek to maximize their total profits…The mistake we’re making here is…

Top Margin Companies

The market’s overall profit margin is the result of profit margins within individual sectors, but within sectors it is typically a small group of companies that dominate. Here are some interesting trends related to those companies. Technology The technology sector has grown to be a large contributor to the markets overall margin, representing 23.3% of…

Profit Margins – Behind the Curtain

Profit margins are an important component of market valuation and are therefore a hot topic because the damn things won’t do what they are supposed to and mean revert.  As several writers have explained, the valuation arguments for U.S. stocks (bull and bear) hinge on the future of profit margins (my favorite pieces are by…