Same Store Sales (SSS)

Definition

Same Store Sales (also called comparable store sales or "comps") measure the revenue growth generated by stores (or branches/outlets) that have been open for at least a year. It strips out growth from new store openings to show underlying demand trends.

Interpretation & Usage

• Positive SSS: Indicates strong customer loyalty, demand, and effective store management.

• Negative SSS: May signal waning popularity, competition, or economic slowdown.

Buy/Sell Strategy:

• Buy: Investors seek retailers with strong or accelerating SSS, signaling healthy business without relying on costly expansion.

• Sell: Weak or negative SSS often triggers share price declines, as it may precede falling profits or store closures.

Real-World Example:

When Starbucks (SBUX) or Walmart (WMT) reports better-than-expected SSS, their stocks often rally. Missed SSS targets can trigger sharp selloffs—even if total revenue rises.

Occupancy Rate

Definition

Occupancy rate measures the percentage of available units (e.g., hotel rooms, apartments, offices) that are occupied over a period. It's a critical metric for real estate investment trusts (REITs), hotel operators, and commercial landlords.

Interpretation & Usage

• High occupancy: Indicates strong demand, efficient operations, and pricing power.

• Low occupancy: Signals oversupply, weak demand, or poor management.

Buy/Sell Strategy:

• Buy: Investors prefer REITs/hotels with stable or rising occupancy, especially if above local/regional averages.

• Sell: Declining occupancy can warn of overbuilding, falling rents, or a weak economy.

Real-World Example:

Marriott International (MAR) and major apartment REITs are closely watched for occupancy rates in quarterly reports; sudden drops can send stocks lower.

Loan Loss Provision

Definition

Loan loss provision is the amount banks set aside as an allowance for potential bad loans. It’s a critical risk management measure for financial institutions.

Interpretation & Usage

• Rising provisions: May signal expected increases in defaults (recession, industry-specific trouble).

• Declining provisions: Indicates improved credit quality or aggressive risk-taking.

Buy/Sell Strategy:

• Buy: Banks with moderate, stable provisions and strong asset quality.

• Sell: If provisions spike (suggesting trouble) or are suspiciously low (potentially masking risk).

Real-World Example:

During COVID-19, JPMorgan Chase (JPM) and peers sharply increased provisions, causing share prices to drop. Falling provisions often accompany economic recovery and stock rebounds.

Combined Ratio (Insurance)

Definition

The combined ratio is a key profitability metric in insurance, measuring underwriting profitability (excluding investment income). A ratio under 100% means premiums collected exceed claims and expenses.

Interpretation & Usage

• Below 100%: Profitable underwriting.

• Above 100%: Losing money on core insurance activities.

Buy/Sell Strategy:

Buy: Insurers with stable or declining combined ratios (especially below 100%).

Sell: Persistently high or rising ratios—can precede dividend cuts or capital raises.

Real-World Example:

Progressive (PGR) and Travelers (TRV) often trade at premiums to book value when they post combined ratios well under 100%.

R&D Expenditure

Definition

Research & Development (R&D) expenditure is the amount spent on developing new products/services or improving existing ones. It’s vital for tech, pharma, biotech, and some industrials.

Formula: R&D Ratio = (R&D Expense ÷ Total Revenue) × 100%

Example: A tech company spends $1.2B on R&D out of $8B revenue:

Interpretation & Usage

• High R&D: May signal innovation, future growth (if efficient).

• Low R&D: Can risk falling behind, especially in fast-moving industries.

Buy/Sell Strategy:

Buy: Firms with a track record of high, productive R&D spend (new patents, successful drugs).

Sell: Firms with rising R&D but little to show for it, or declining R&D when innovation is critical.

Real-World Example:

Alphabet (GOOGL), Apple (AAPL), and Pfizer (PFE) invest heavily in R&D, often signaling pipeline strength to investors.

Revenue per Employee

Definition

Revenue per employee measures how efficiently a company’s workforce generates sales. It’s often used for benchmarking operational efficiency in service, tech, and manufacturing sectors.

Interpretation usage:

• Higher value: Suggests automation, efficiency, or high-value services.

• Lower value: May point to labor-intensity, inefficiency, or commoditized business.

Buy/Sell Strategy:

• Buy: Firms with rising revenue per employee, signaling scaling and productivity.

• Sell: Declining values, unless investing in future growth.

Real-World Example:

Apple (AAPL) and Facebook (META) boast some of the highest revenue per employee in the world, supporting high margins and valuations.

Profit per Employee

Definition

Profit per employee is net income divided by the number of employees. It’s another measure of workforce productivity and profitability.

Interpretation & Usage

• Higher value: Indicates efficient operations, possible pricing power.

• Lower value: May suggest overstaffing or thin margins.

Buy/Sell Strategy:

• Buy: Companies with high or rising profit per employee.

• Sell: Falling profit per employee, especially with rising headcount but flat profit.

Real-World Example:

Alphabet (GOOGL) and Microsoft (MSFT) regularly lead global rankings in profit per employee.

How Investors Use Sector-Specific Metrics to Buy and Sell Stocks

• Sector specialists use these metrics as primary filters—comparable store sales for retail, occupancy for real estate, combined ratio for insurance, R&D for tech/pharma, etc.

• Buy: Firms outperforming peers on sector-specific metrics, or showing consistent improvement.

• Sell: Companies with deteriorating metrics, negative surprises, or falling behind competitors.

Practical Example:

A retail investor might buy a chain with accelerating SSS, or an apartment REIT with rising occupancy, while avoiding banks with surging loan loss provisions or insurers with worsening combined ratios.

References

CFA Institute. (2023). CFA Level 1 Curriculum – Industry and Company Analysis.

White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.

Investopedia. (2024). "Same Store Sales", "Occupancy Rate", "Loan Loss Provisions", "Combined Ratio", "R&D Spending".

Yahoo Finance, Company Filings.

Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.