Fire Your Stock Analyst!: Analyzing Stocks on Your Own

Analyzing Margins

While gross margins can be useful for detecting deterioration in a company’s competitive position, and profit margins are a key ingredient in the target price calculation, I’ve found operating margins the most useful of the three measures for evaluating a company’s profitability trends.

For instance, Table 11-11 shows communications equipment provider Black Box Corporation’s operating margin history, as it appeared in May 2000.

Table 11-11. Black Box Corporation’s operating margin.

Period	Q 3/00	Q 3/99	FY 3/00	FY 3/99	FY 3/98	FY 3/97
Operating margin	15.8%	20.5%	16%	19%	19%	19%

Black Box’s operating margin held at a steady 19 percent through fiscal 1999. However, it dropped to 16 percent in its fiscal year ending March 1999. That amounts ...