Americans pay higher prices for just about everything – which could portend bad news for many companies.
The Producer Price Index, which measures the costs that domestic producers pay for goods and services, rose 9.6% year on year, according to the latest reading in November. Meanwhile, the Consumer Price Index, which measures the prices shoppers pay for products, rose 6.8% over the same period.
This means that many producers have had to absorb higher input costs themselves – likely resulting in lower profits and narrowing profit margins.
However, some companies are likely to do better in an inflationary environment. Firms with a competitive advantage and strong pricing power, for example, can pass on increased costs to customers by raising prices. Other companies may be less affected by higher labor and material costs thanks to the type of products and services they sell.
Baron searched for
Standard & Poor’s 500
Companies that managed to expand their profit margins – both net and gross – in the last reported fiscal quarter, compared to the same periods in 2020 and 2019. A 2019 comparison is included to ensure higher margins aren’t the result of abnormally bad 2020 numbers due to the Covid-19 pandemic. Companies with negative earnings in any of the three years were excluded from the list.
Among the group of nearly 100 stocks whose margins have expanded, 11 stocks are currently trading more than 20% below 52-week highs as of Friday. This is a sign that these names may have fallen behind enough and are ready to bounce back, given their healthy profitability growth.
one of the stocks in the list,
under the shield
(UAA), a good example. During the quarter ending September 2021, the sports apparel retailer grew its net sales 8% year-over-year to $1.5 billion.
However, Under Armour’s net income jumped to $113 million from $39 million last year. This means that the company was able to significantly enhance its profitability, despite similar levels of consumer activity and revenue. As a result, Under Armor’s net margin increased from 2.7% to 7.3%, and its gross margin increased from 48% to 51%. Notably, even when compared to 2019, margins improved slightly, despite inflationary pressures linked to the pandemic.
|company / bar||section||2021 net margin Q3||2020 Q3 Net Margin||2019 Q3 Net Margin||Current Price / 52W High||Price / Earnings|
|Communications Charter / CHTR||Telecom||9.3||6.8||3.4||77%||28.2|
|Read / LDOS||Industries||5.9||5.0||5.7||80||13.7|
|Cavitation Techniques / LUMN||Telecom||11.1||7.1||5.6||78||6.7|
|Mohawk Industries / MHK||Material||9.6||8.0||6.2||78||12.2|
|Netflix / NFLX||technology||19.4||12.3||12.7||79||51.6|
|Public Telecommunications Corporation/Public Telecommunications Corporation||technology||60.9||13.7||2.9||76%||27.2|
|Qorvo / QRVO||technology||25.4||12.9||10.3||79||13.3|
|AT&T / T||Telecom||14.8||6.7||8.3||77||7.7|
|Under Armor / UAA||Consumer Patrols||7.3||2.7||7.2||76||27.4|
|Viatris / VTRS||Health Care||6.9||6.2||6.4||77||3.9|
Other companies on the list tend to be less affected by higher input costs to never b. That’s because their products or services are mostly based on existing infrastructure, intellectual property or platforms.
Examples include telecom giants
(Dish). Join them with our video streaming platform
(NFLX) Software Inc.
(PTC), as well as
Write to Evie Liu at [email protected]