Margins matter. The more US Ecology (Nasdaq: ECOL) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. That's why I check on my holdings' margins at least once a quarter. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong US Ecology's competitive position could be.

Here's the current margin snapshot for US Ecology and some of its sector and industry peers, and direct competitors.

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 US Ecology

30.8%

17.4%

10.9%

 Perma-Fix Environmental Services (Nasdaq: PESI)

26.8%

10.6%

9.6%

 Waste Management (NYSE: WM)

37.2%

16%

8.4%

 Clean Harbors (NYSE: CLH)

29.1%

10.5%

6.2%

 Horsehead Holding (Nasdaq: ZINC)

16.8%

5.6%

2.8%

Source: Capital IQ, a division of Standard & Poor's. TTM=Trailing 12 months.

Unfortunately, that table doesn't tell us much about where US Ecology has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margins that inch downward over time is often losing out to competition, and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.

Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months (TTM), the latest fiscal year, and latest fiscal quarter (LFQ). You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.

Here's the margin picture for US Ecology over the past few years.


(Because of seasonality in some businesses, the numbers for the last period on the right -- the TTM figures -- aren't always comparable to the FY results preceding them.)

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 39.1% and averaged 30.6%. Operating margin peaked at 23.3% and averaged 19.7%. Net margin peaked at 19.4% and averaged 13.5%.
  • The fiscal year 2009 gross margin was 27.1%, 350 basis points worse than the five-year average. The fiscal year 2009 operating margin was 16.9%, 280 basis points worse than the five-year average. The fiscal year 2009 net margin was 10.5%, 300 basis points worse than the five-year average.
  • The TTM gross margin is 30.8%, 20 basis points better than the five-year average. The TTM operating margin is 17.4%, 230 basis points worse than the five-year average. The TTM net margin is 10.9%, 260 basis points worse than the five-year average.
  • The LFQ gross margin is 36%, 1,100 basis points better than the prior-year quarter. The LFQ operating margin is 19.2%, 350 basis points better than the prior-year quarter. The LFQ net margin is 11.7%, 200 basis points better than the prior-year quarter.

With recent 12-month-period operating margins below historical averages, US Ecology has some work to do. There may be some hope in the latest quarter's results, but only time will tell.

If you take the time to read past the headlines and crack a filing now and then, you're probably ahead of 95% of the market's individual investors. By keeping an eye on the health of your companies' margins, you can spot potential trouble early, or figure out whether the numbers merit Mr. Market's enthusiasm or pessimism. Let us know what you think of the health of the margins at US Ecology in the comments box below. Or, if you're itching to learn more, head on over to our quotes page to view the filings directly.