Margins matter. The more Rovi
Here's the current margin snapshot for Rovi and some of its sector and industry peers and direct competitors.
TTM Gross Margin
TTM Operating Margin
TTM Net Margin
| Dolby Laboratories
| Adobe Systems
Source: S&P Capital IQ. TTM = trailing 12 months.
Unfortunately, that table doesn't tell us much about where Rovi 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 the 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 Rovi 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 with the FY results preceding them. To compare quarterly margins with 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 93.6% and averaged 88.9%. Operating margin peaked at 38.7% and averaged 23.9%. Net margin peaked at 39.3% and averaged 8.1%.
- TTM gross margin is 85%, 390 basis points worse than the five-year average. TTM operating margin is 19.9%, 400 basis points worse than the five-year average. TTM net margin is 17.4%, 930 basis points better than the five-year average.
With recent TTM operating margins below historical averages, Rovi 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. Have an opinion on the margins at Rovi? Let us know in the comments section below.