Re: [CANSLIM] Profit margin

From: Spencer48@aol.com
Subject: Re: [CANSLIM] Profit margin
Date: Sat, 23 Feb 2002 23:41:06 EST

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Tom:

     When sales don't grow much, and earnings do, couldn't this be because 
the profit margin has increased?  And why do you believe (if you do) that 
this is relatively unimportant?  Because of Enron?

     As an example of sales not growing nearly as fast as earnings, a company 
in the defense industry sells mainly to the government.  Now their sales are 
not going to increase very much (because their main customer is the 
government); however, there  are not too many competitors for what they are 
selling and the government wants (mainly maintenance/replenishment 
armaments-not anything whiz-bang).  After 911 the governments demand for the 
products more immediately would create an urgency to buy.

     Therefore, assuming that the government wants the goods enough, sales 
would remain steady even as earnings increased-because the company could 
increase its profit margin (I'm not talking about gouging;the mark-up was 
relatively low before, and now-after 911-it is relatively high).  So, if the 
chart looks good, wouldn't it be problematical to focus too much on the lack 
of sales increase by the company?

jans  


In a message dated 2/23/2002 6:42:43 AM Eastern Standard Time, 
stkguru@netside.net writes:

<< When earnings grow
 without comparable growth in sales, it is a warning that it is a result of
 cost cutting efforts. And when sales grow without comparable earnings
 growth, it is a warning of price cutting or a shift towards lower margin
 products. >>

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