1 Reason National Research Looks Attractive

Margins matter. The more National Research (Nasdaq: NRCI  ) 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, so I can compare them to current and potential competitors, and any trend that may tell me how strong National Research's competitive position could be.

Here's the current margin snapshot for National Research over the trailing 12 months: Gross margin is 59.0%, while operating margin is 26.3% and net margin is 17.4%.

Unfortunately, a look at the most recent numbers doesn't tell us much about where National Research 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 (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 National Research 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 62.2% and averaged 58.8%. Operating margin peaked at 26.3% and averaged 24.2%. Net margin peaked at 17.4% and averaged 15.1%.
  • TTM gross margin is 59.0%, 20 basis points better than the five-year average. TTM operating margin is 26.3%, 210 basis points better than the five-year average. TTM net margin is 17.4%, 230 basis points better than the five-year average.

With TTM operating and net margins at a 5-year high, National Research looks like it's doing great.

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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 has no position in any of the stocks mentioned. 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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  • Report this Comment On April 15, 2013, at 2:33 AM, seattle1115 wrote:

    I'm waiting for someone to explain to me NRCI's plan to split each share into 3 preferred shares and one common share. I like this company a lot and I have a little money in it, but I can't make sense of the upcoming shenanigans. I wish someone at Motley Fool would break it down for me.

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