mardi 23 janvier 2018

Margins - Edit

Sorry. My first screening of stocks via Value Line wasn’t OK at all. Here’s something better.


Net income divided by net sales equals operating margins.

In other words, operating margins represent how much a business needs to sell things to make money.

Here's a few businesses with interesting margins:

Visa: 69%
Credit Acceptance Corp: 69%
Netflix: 60%
Mastercard: 58%
Canadian Pacific: 52%
Priceline: 40%
McDonald’s: 39%
Microsoft: 39%
Alphabet: 32%
Apple: 31%
Disney: 30%
Starbucks: 24%
Tiffany: 24%
Fastenal: 23%
O'Reilly: 22%

And here's a short list of great businesses with low margins (7% margins or less).

Metro: 7%
Alimentation Couche-Tard: 6%
Carmax: 6%
Costco: 5%

For that list, I've retained only 4 stock known by everybody. There were many obscure names on my screening, which is normal: if a business has poor margins, it's probably a poor business. So, you don't hear about it. 

Obviously, If there's some money to make, entrepreneurs will be interested to go start a business in that specific field. So, there should be some competition eventually. But it's not a good reason to avoid to take a look at high margins businesses first.  

Few people look at margins first. It's not the first thing to check when you analyze a stock, but it's interesting to see the challenges that faces the business (margins are one of these challenges). And it's impossible not to be amazed by Couche-Tard that achieved such a spectacular performance with such low margins.

4 commentaires:

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  3. Visa has 60% operating margins. Unheard of. Many businesses don't have that as their gross marhin.