Margins matter. The more Covance
Here's the current margin snapshot for Covance and some of its sector and industry peers and direct competitors.
TTM Gross Margin
TTM Operating Margin
TTM Net Margin
| Pharmaceutical Product Development
| Parexel International
| Kendle International
Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.
Unfortunately, that table doesn't tell us much about where Covance 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 the 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 Covance 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.
(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 32.6% and averaged 31.8%. Operating margin peaked at 14.4% and averaged 13.6%. Net margin peaked at 10.8% and averaged 10.1%.
- TTM gross margin is 29.4%, 240 basis points worse than the five-year average. TTM operating margin is 10.8%, 280 basis points worse than the five-year average. TTM net margin is 8.1%, 200 basis points worse than the five-year average.
With recent TTM operating margins below historical averages, Covance has some 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 Covance? 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. Pharmaceutical Product Development is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool has a disclosure policy.
More from The Motley Fool
3 Biotech Stocks to Buy on Sale
These biopharma stocks have great prospects and can be purchased today at attractive prices.
Here's Why Parexel International Shares Fell as Much as 15.5% Today
The company notified the SEC that it will be filing its quarterly report late after errors were discovered, but it may not be as bad as it appears.
PAREXEL International Corporation's Q1 Report Flops, Shares Sink As Much As 13%
Find out whether this is a case of a temporarily broken stock or a broken business model.