Margins matter. The more JA Solar
Here's the current margin snapshot for JA Solar over the trailing 12 months: Gross margin is 9.4%, while operating margin is 5.2% and net margin is 5.1%.
Unfortunately, a look at the most recent numbers doesn't tell us much about where JA Solar 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 JA Solar 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. Here's how the stats break down:
- Over the past five years, gross margin peaked at 24.7% and averaged 19.9%. Operating margin peaked at 18.8% and averaged 13.5%. Net margin peaked at 18.4% and averaged 8.4%.
- TTM gross margin is 9.4%, 1,050 basis points worse than the five-year average. TTM operating margin is 5.2%, 830 basis points worse than the five-year average. TTM net margin is 5.1%, 330 basis points worse than the five-year average.
With recent TTM operating margins below historical averages, JA Solar 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 JA Solar? Let us know in the comments below.
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