One metric that investors often overlook is a profit margin. For a company in the manufacturing business, a single-dollar invested may only earn a total profit of a dime after all the costs involved. For a software company, a dollar invested may yield fifty cents.
Over time, it’s clear that the higher-margin business ends up with more capital to expand, pay a dividend, buy back shares, or otherwise reward investors. Any of those activities tend to translate to a higher share price.
That’s why when companies with a high-margin line report earnings, the success of that line of business can matter. For instance, media giant The Walt Disney Company (DIS) just reported earnings, and more importantly reported that its streaming operations turned a profit.
That allowed shares to see a massive jump, and continued profitability in this high-margin line of business should continue to reward shares.
Action to take: Disney is still well off its 52-week highs, but trending higher. Shares could see low-double-digit returns in the months ahead to retest those highs, making shares a momentum play for investors now. At current prices, Disney also pays a 0.9% dividend.
For traders, the January 2025 $120 calls, last trading for about $1.05, could see mid-to-high double-digit returns on further gains in shares into the start of next year.
Disclosure: The author of this article has a position in the company mentioned here, but does not intend to further trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.