Margins matter. The more Agilent Technologies (NYSE: A) 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 Agilent Technologies' competitive position could be.

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

Company

TTM Gross Margin

TTM Operating Margin

TTM Net Margin

 Agilent Technologies

53%

9%

4.1%

 Keithley Instruments (NYSE: KEI)

62.9%

10.1%

10%

 National Instruments (Nasdaq: NATI)

76.6%

12.2%

7.2%

 JDS Uniphase (Nasdaq: JDSU)

43.2%

(5.9%)

(6.7%)

Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months. Excludes most recent quarter for just reported companies.

Unfortunately, that table doesn't tell us much about where Agilent Technologies 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 Agilent Technologies 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 55.4% and averaged 53%. Operating margin peaked at 13.7% and averaged 9.2%. Net margin peaked at 66.5% and averaged 19.3%.
  • TTM gross margin is 53%, about the same as the five-year average. TTM operating margin is 9%, 20 basis points worse than the five-year average. TTM net margin is 4.1%, 1,520 basis points worse than the five-year average.

With recent TTM operating margins below historical averages, Agilent Technologies has some work to do. There may be some hope in the last 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. To stay ahead, learn more about how I use analysis like this to help me uncover the home run stock you're too afraid to buy. Do-it-yourselfers can head over to our quotes page to review Agilent Technologies's latest filings directly.

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. National Instruments is a Motley Fool Stock Advisor choice. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.