Any time is appropriate for questioning value deliveries to customers. Corporations run by former sales people are especially vulnerable to exaggerated claims of customer loyalty. Some stock investors buy quarterly management stories about why market shares have grown faster than profits. However, stock exchange veterans prefer to see selling price increases as marks of customer preferences, above all else.
It is true that some marketing investments require more than a year to realize full returns. However, these costs invariably appear below the Gross Margin line. Hence, trends in this ratio speak volumes about the basic health of any stock. Inflation generally affects an entire industry, if not the whole sector uniformly, therefore benchmarking a stock against Gross Margins earned by direct competitors gives an X-Ray view of the state of a business.
Competition and Gross Margins are inversely related. No professional would introduce a new brand with additional customer benefits, at a discounted Gross Margin. Public statements about volume scoring over percentage margins are mostly misleading: investors should never allow profit opportunities to slip away.
Inflation and recession are top occasions to test Gross Margins. Rank and file stocks, as well as the pretentious ones, will slip by the stock exchange wayside. However, top stock picks will almost never surrender Gross Margins. The best business managers will not shy away from recovering cost increases, while incessantly driving them down at the same time.
It will soon be reporting season once again. Prepare a management barbecue of questions on Gross Margins, and reap a feast of fresh stock investment options.
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