The electronics sector can provide an investment portfolio with substantial growth opportunities. This diverse sector includes telecommunications, networking equipment, electronic components, consumer electronics, semiconductors and other electronic devices. In January 2021, the average profit margin for companies in the electronics sector was 3.49%.
The profit margin is net revenue divided by total income. Analysts often use this measure to compare companies in similar industries or sectors. A higher profit margin shows that a particular company has good cost control compared to its competitors. If the company is losing money, this ratio is of little use.
The electronics sector is characterized by a large number of companies with negative profits. The distribution of profit margins in the electronics industry is heavily skewed due to the presence of a few significant outliers, making the average profit margin a misleading measure. Instead, analysts often use the median profit margin ratio to get an idea of the profitability of a typical electronics business.
Another thing to note is the presence of one-time items in the earnings of an electronics business. Businesses often shut down operations or receive large one-time payments, which increases their profit margins. These items are not expected to reoccur in the next period, resulting in a subsequent decline in profit margin. Analysts generally err on the side of caution and look for one-time items to ensure the future profit margin is sustainable.
