Yes, Mr. Gogo, an interesting article. Ultimately for me though, unsatisfactory. I read it briefly twice, not sure what I'm supposed to do with the information. I guess the author's point is that he/they are cautious - and I should be too - because profit margins are very high now, and at an unsustainable level, and that might mean stock prices (p/e's) might fall and/or p/sales. (price/sales divided by profit margins (i.e earnings/sales = profit margins) = price/earnings). Looks like author compares current high profit margins with smoothed(averaged) p/e prices. Maybe should be smoothed profit margin numbers vs. smoothed p/e numbers.
Afaik, I'm one of a few people around here who mentions incorporating profit margin numbers in determining whether a stock is a value buy. I don't want to get into details, essentially though for me it's a question of what am I willing to pay for the profit margins I'm looking to expect, based on the company's historical profit margin performance. Google, which I've mentioned occasionally over several years has profit margins of 25% or more. What am I willing to pay for a company like that if they can continue this performance? How do I handicap that versus something like ALU which shows profit margins of 7% (per Yahoo) now, but a string of losses; or vs. BHI which shows about 9% now (Yahoo) but between 4% and 15% in recent past years? Questions I ask myself.
I guess my point is that I look at profit margins at the company level, comparing each company to its history and to its other metrics. I'm not much concerned about high profit margin levels currently being seen by the author on stocks in general. |
