Do It Yourself Stock Investor

Gross Margin

July 06, 2015

Chances are you have played a quiz-game hosted on Facebook or similar social network site. More specifically, the one that matches you to a celebrity or movie character of resemblance. By answering a few questions a participant can determine if they are more like Piper Chapman or Crazy Eyes (Orange Is The New Black). The following is a scale I created using the gross margins of publicly traded companies. Which gross margin are you or your business?

Gross Margin Comparison Chart

More On Gross Margin

All kidding aside, gross margin is not a simple metric that can always be applied for value assessment and investing. It doesn't consider other types of expenses. Gross profit consists of the full (gross) revenue collected minus the specific expenditures defined as: Cost Of Goods Sold (COGS). This leaves out other general expenses, which for some companies can be very great. The margin is then expressed as a ratio of gross profit to gross revenue.

A more final deduction to show profitability is: Earnings Before Interest & Taxes (EBIT). This value factors out COGS as well as additional expenses except for interest and taxes. Whereas a company might present healthy in the gross margin metric, the same may not be said when further expenses are subtracted. The operating margin consists of EBIT in ratio to gross revenue, which better expresses the company's profits.

According to the operating margin, Skullcandy moves from 4th to 3rd in the aforementioned group. This is mainly due to Glu Mobile's extra Research and Development (R&D) expense. If I were to play the match game I'd think Skullcandy would be a close comparison. I'm middle of the pack in some metrics and advancing among my niche groups.

Stunts and Guerrilla Marketing

Briefly mentioned in Skullcandy's synopsis, was guerrilla marketing. In a rough summary, guerrilla marketing is showing brand and products in "uninvited" areas. Perhaps uninvited has too negative a connotation. A surprise guest could work as substitution. If the company logo is not on the X Games' race track barriers, the company logo could show up via free product disbursement. This creates a presence at the event, but also someone is bound to see the logo as the camera pans the campus.

If you are not a key sponsor for a prized event, try making your own. Guerrilla marketing can include logo placement during an original event and viral video. The Skullcandy, "Drop In" video, featuring Robbie Maddison is a perfect example. Enjoy!