If You See This, Are You Buying Motricity?

Margins matter. The more Motricity (Nasdaq: MOTR  ) 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. Healthy margins often separate pretenders from the best stocks in the market.  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 Motricity's competitive position could be.

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

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Motricity

64.2%

(5.8%)

(5.3%)

 Amdocs (NYSE: DOX  )

35.7%

13.1%

10.8%

 Smith Micro Software (Nasdaq: SMSI  )

88.1%

14.1%

9.5%

 LM Ericsson Telephone (Nasdaq: ERIC  )

38.2%

12.0%

5.5%

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

Unfortunately, that table doesn't tell us much about where Motricity 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 last fiscal year, and last 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 Motricity over the past few years.

Source: Capital IQ, a division of Standard & Poor's. Dollar amounts in millions. FY= fiscal year. TTM = trailing 12 months. Motricity went public in June 2010; periods prior to fiscal 2006 are not available.

(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 64.2% and averaged 59.9%. Operating margin peaked at -4.3% and averaged -59.9%. Net margin peaked at -5.3% and averaged -113.7%.
  • TTM gross margin is 64.2%, 430 basis points better than the five-year average. TTM operating margin is -5.8%, 5,410 basis points better than the five-year average. TTM net margin is -5.3%, 10,840 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, but still negative, Motricity looks like it still has a lot of work to do.

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. To stay ahead, learn more about how I use analysis like this to help me uncover the best returns in the stock market.  Got an opinion on the margins at Motricity? Let us know in the comments below.

Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor of Motley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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