Margins matter. The more Teradata
Here's the current margin snapshot for Teradata over the trailing 12 months: Gross margin is 54.7%, while operating margin is 19.6% and net margin is 14.9%.
Unfortunately, a look at the most recent numbers doesn't tell us much about where Teradata 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. 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 Teradata 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 56.2% and averaged 54.7%. Operating margin peaked at 21.4% and averaged 19.7%. Net margin peaked at 15.5% and averaged 14.3%.
- TTM gross margin is 54.7%, about the same as the five-year average. TTM operating margin is 19.6%, 10 basis points worse than the five-year average. TTM net margin is 14.9%, 60 basis points better than the five-year average.
With recent TTM operating margins below historical averages, Teradata has some work to do.
- Add Teradata to My Watchlist.
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. Motley Fool newsletter services have recommended buying shares of Teradata. 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.
More from The Motley Fool
Why Teradata Corp. Stock Is Soaring Today
The data analytics and management expert's subscription-based sales model is still hurting the top line, but the new process is starting to pay dividends for patient investors.
3 Things Teradata Corp.'s Management Wants You to Know
The data analytics software maker is selling its wares under a new, subscription-based pricing model. The transition is hurting Teradata's revenues right now but should start paying dividends as early as next year.
Why Teradata Corporation Stock Popped Today
The data warehouse solutions company jumped after a strong quarterly report.