What Party Panders to the Rich? Libertarians Take Note:

[Ardentfrost]

I'm lost as to how this thread progressed to this point. Do profits = stock performance? Not really. Stocks have a lot to do with futures, profits is all about now performance. Wal-Mart keeps getting mentioned and its low profit margin, but in that respect it's 3% profit on millions and millions of items sold each day. They have optimized their cost and supply chain to the point that they are able to offer lower prices at a lower margin and rely on the product movement making them profits.

Profit margins and ROI only matter to the business itself as a direct result of pricing. Wal-Mart has basicly used a Bertrand pricing model, where they have lowered their price so much, no one can help but buy their products. The key to this model is to have your costs lower than your competition, thereby giving you a larger market share when pricing below their costs. So in order for Wal-Mart to make more money, they must reduce their costs, NOT increase their prices which would cause customers to renege. Again, nothing to do with their stock performance.

And it's not that Wal-Mart's stock performs exceptionally well... for a short term investor, it's not a good bet. But look at this:

WMT - Wal-Mart Stores, Inc. - Google Finance

They have historically given very decent dividends, and fairly often (4 times in the last year, and some every year since 1987ish except in 2006). Their 52 week low is $42, 52 week high is $54, so it's a fairly stable stock that isn't too expensive. These two things make it especially great for older investors who move their stocks into companies that pay good dividends to help their retirement along. Personally, I wouldn't invest in Wal-Mart because their upward growth has kinda tapered off in the past couple years and I have no need for dividends at this point in my life. But as long as Wal-Mart can continue to make decent revenues so that they can pay dividends, then the stock will remain as it is: stable and a decent investment for older people as well as long term investors who ARE interested in dividends.

[WickedLou9]

Originally Posted by Ardentfrost

I'm lost as to how this thread progressed to this point. Do profits = stock performance? Not really. Stocks have a lot to do with futures, profits is all about now performance. Wal-Mart keeps getting mentioned and its low profit margin, but in that respect it's 3% profit on millions and millions of items sold each day. They have optimized their cost and supply chain to the point that they are able to offer lower prices at a lower margin and rely on the product movement making them profits.

Profit margins and ROI only matter to the business itself as a direct result of pricing. Wal-Mart has basicly used a Bertrand pricing model, where they have lowered their price so much, no one can help but buy their products. The key to this model is to have your costs lower than your competition, thereby giving you a larger market share when pricing below their costs. So in order for Wal-Mart to make more money, they must reduce their costs, NOT increase their prices which would cause customers to renege. Again, nothing to do with their stock performance.

And it's not that Wal-Mart's stock performs exceptionally well... for a short term investor, it's not a good bet. But look at this:

WMT - Wal-Mart Stores, Inc. - Google Finance

They have historically given very decent dividends, and fairly often (4 times in the last year, and some every year since 1987ish except in 2006). Their 52 week low is $42, 52 week high is $54, so it's a fairly stable stock that isn't too expensive. These two things make it especially great for older investors who move their stocks into companies that pay good dividends to help their retirement along. Personally, I wouldn't invest in Wal-Mart because their upward growth has kinda tapered off in the past couple years and I have no need for dividends at this point in my life. But as long as Wal-Mart can continue to make decent revenues so that they can pay dividends, then the stock will remain as it is: stable and a decent investment for older people as well as long term investors who ARE interested in dividends.

I think we are getting off topic a bit, but my point was that you can't just look at profit margins and be able to tell much of anything at all about a company. Whenever the discussion comes up about XOM's gargantuan profits someone always brings up the 10% margin. IMO, The margin is a non issue. Scale is important. Simply because thigns dont't get more expensive as you earn more revenue. If the price of oil goes up XOM makes more money without spending anything. They don't have to open new stores. So anything over a certain amount is just pure cheese with which executives at XOM can line thier pockets for doing essentially nothing. You don't even need to advertise oil. Your customers find you. Oil is also distinctly different than almost any other consumer good. I don't think looking at it's margins in this way is really telling us anything about the morality of thier business practices or whether or not it is "right" for the federal government to want to tax some of thier profits. People always say " we shoudln't punish them for making money, they are only earning a 10% margin which is not unusual" Well I bet that all of the CEO's wear shoes too. Wearing shoes is not unusual either. Neither factor has anything to do with anything.