"Among the key items I look at when I consider companies' income statements and balance sheets is how much gross and net margin they're creating. That's because these metrics are pretty solid estimations of how well a given company is operating. Indeed, at the end of the day, valuations come down to how much cash flow or earnings a given company will generate over their remaining years in operation."
"At a mid-20s price-earnings ratio for a company that generated $100 billion in revenue this past quarter (up 16% year-over-year), there's a lot to like about how Alphabet is priced relative to its future growth potential. Indeed, I'd argue that the company's top-line growth number probably gets disproportionate attention from investors and the market as a whole, despite the underlying reality that these revenues are highly profitable. In fact, the company's operating margin has expanded over the past year, surging to nearly 34% this past quarter."
Markets hovering near all-time highs make entry into specific growth names difficult for some investors because valuations have surged. Gross and net margins serve as indicators of operating quality and help estimate a company’s ability to generate cash flow and earnings over its remaining years. Three companies with sky-high margins are presented as likely to withstand future market conditions. Alphabet displays a mid-20s price-earnings ratio while generating $100 billion in quarterly revenue, up 16% year-over-year. Alphabet’s revenues are highly profitable, and operating margin expanded to nearly 34% this past quarter, supported by scalability and growth in cloud and search.
Read at 24/7 Wall St.
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