[8/18/05] Traditionally, margins represent the efficiency by which companies capture portions of sales dollars. This article provides an explanation of the difference between gross margin, operating margin, and net margin.
In general, I'd say a high margin is a good thing. But a high margin naturally tends to yield a high price/sales ratio which is not generally considered desirable in value investing. That's probably because high margin businesses are generally high growth businesses. And high growth businesses tend to have high P/Es. So a high margin might be good for the company, but not necessarily for the stock.
[9/12/05] I'm looking at One Up On Wall Street (Some Famous Numbers). Lynch says "as business improves, the companies with the lowest profit margins are the biggest beneficiaries ... This explains why depressed enterprised on the edge of disaster can become very big winners on the rebound ... What you want then is a relatively high profit-margin in a long-term stock that you plan to hold through good times and bad, and a relatively low profit-margin in a successful turnaround."
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