Is Wright Express Working Hard Enough for You?
Margins matter. The more Wright Express (NYS: WXS) keeps of each buck it earns in revenue, the more money it has to invest in growth, fund new strategic plans, or (gasp!) distribute to shareholders. Healthy margins often separate pretenders from the best stocks in the market. That's why we check up on margins at least once a quarter in this series. I'm looking for the absolute numbers so I can compare them to current and potential competitors and spot any trend that may tell me how strong Wright Express's competitive position could be.
Here's the current margin snapshot for Wright Express over the trailing 12 months: Gross margin is 74.3%, while operating margin is 40% and net margin is 24.2%.
Unfortunately, a look at the most recent numbers doesn't tell us much about where Wright Express has been, or where it's going. A company with rising gross and operating margins often fuels its growth by increasing demand for its products. If it sells more units while keeping costs in check, its profitability increases. Conversely, a company with gross margin that inches downward over time is often losing out to competition and possibly engaging in a race to the bottom on prices. If it can't make up for this problem by cutting costs -- and most companies can't -- then both the business and its shares face a decidedly bleak outlook.
Of course, over the short term, the kind of economic shocks we recently experienced can drastically affect a company's profitability. That's why I like to look at five fiscal years' worth of margins, along with the results for the trailing 12 months, the last fiscal year, and the last fiscal quarter. You can't always reach a hard conclusion about your company's health, but you can better understand what to expect, and what to watch.
Here's the margin picture for Wright Express over the past few years.
Source: S&P Capital IQ. Dollar amounts in millions. FY = fiscal year. TTM = trailing 12 months.
Source: S&P Capital IQ. Dollar amounts in millions. FQ = fiscal quarter.
Here's how the stats break down:
- Over the past five years, gross margin peaked at 74.3% and averaged 71%. Operating margin peaked at 56.2% and averaged 38.6%. Net margin peaked at 44.3% and averaged 27.8%.
- TTM gross margin is 74.3%, 330 basis points better than the five-year average. TTM operating margin is 40%, 140 basis points better than the five-year average. TTM net margin is 24.2%, 360 basis points worse than the five-year average.
With recent TTM operating margins exceeding historical averages, Wright Express looks like it is doing fine.
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