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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Operating Margins

Finding gross margin differences as pronounced as the Microsoft versus Oracle and Intel versus Advanced Micro examples are the exception rather than the rule. Typically, gross margins don’t differ much among competitive firms, and normal year-to-year variations make it difficult to discern a meaningful difference.

On the other hand, operating margins often do tell a story and can convey important information pointing to the eventual dominator of a heretofore competitive industry.

Two firms, Bed Bath & Beyond and Linens ’n Things, pioneered the linen retail superstore category in the 1990s. Table 11-10 illustrates how you could have used operating margins to pick the eventual winner.

Table 11-10. Operating margins and sales ...

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