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Are You Missing Something Easy at Yongye International?

Margins matter. The more Yongye International (Nasdaq: YONG  ) 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 we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers, comparisons to sector peers and competitors, and any trend that may tell me how strong Yongye International's competitive position could be.

Here's the current margin snapshot for Yongye International:

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

58.3% 31.3% 23.9%

Source: S&P Capital IQ. TTM = trailing 12 months.

Unfortunately, the latest numbers don't tell us much about where Yongye International 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, the last fiscal year, and last fiscal quarter. 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 Yongye International over the past few years.

Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.

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. To compare quarterly margins to their prior-year levels, consult this chart.

Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.

Here's how the stats break down:

  • Over the past five years, gross margin peaked at 55.7% and averaged 46.5%. Operating margin peaked at 37.6% and averaged 28%. Net margin peaked at 33.2% and averaged 19.5%.
  • TTM gross margin is 58.3%, 1,180 basis points better than the five-year average. TTM operating margin is 31.3%, 330 basis points better than the five-year average. TTM net margin is 23.9%, 440 basis points better than the five-year average.

With recent TTM operating margins exceeding historical averages, Yongye International looks like it is doing fine.

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 Yongye International? Let us know in the comments section 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. The Motley Fool owns shares of Yongye International. Motley Fool newsletter services have recommended buying shares of Yongye International. 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.

Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 04, 2012, at 12:13 PM, egarl wrote:

    I have been following yong for two years and I think the Q4 2011 results in 3/2012 will finally prove that it is a real, vibrant, fast growing company.

    That should start the price appreciation and gain some analysts so the news will spread.

    Fertilizer stocks will all appreciate and especially this one.

  • Report this Comment On January 04, 2012, at 1:23 PM, tkell31 wrote:

    Big surprise the daily pump piece from MF. Amazing isn't it that the market isn't acting on the tremendous financials they are reporting? This is no different than the other scams.

  • Report this Comment On January 04, 2012, at 11:54 PM, mitcjam95 wrote:

    Believe it's a scam, hahah, how naieve are you? I'm not short-sighted, but Long. I'll be laughing all the way to the bank while you lose all your money shorting this company. I'm waiting for a response from Buffalonate since he obviously doesn't "short the stock" - what a joke. The market overall is going up and fertilizer is a great play in China where land is sparse and the population continues to increase.

  • Report this Comment On January 17, 2012, at 8:32 PM, tkell31 wrote:

    Well, 35 or so have preceded it with exactly the same pattern, with exactly the same knuckleheads like you making broad generalizations and down playing the obvious. So yeah, go Long with your fictitious shares. Hey, I hope you hit a home run with it, but you are the one who is extremely naive for thinking this one is "different." Investors in scams like CHBT, RINO, CSKI, APWR, CCME...hey it's China it's growing, get in now! Sucker.

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YONG.DL $0.00 Down +0.00 +0.00%
Yongye Internation… CAPS Rating: **