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Health care plans: 3.3%
Hospitals: 3.6%
Accident and Health ins.: 3.8%
Generic drugs: 6.6%
Biotech: 6.7%
Medical lab 8.2%
Home health care: 8.4%
Health IT: 9.4%
Drug Delivery: 13.5%
Drug MFG. 16.5%
REIT - Healthcare facilities: 24.6%
Disclosure: I don't invest in the healthcare sector, but the profit margin may not tell the entire story.
Health care plans: 3.3%
Hospitals: 3.6%
Accident and Health ins.: 3.8%
Generic drugs: 6.6%
Biotech: 6.7%
Medical lab 8.2%
Home health care: 8.4%
Health IT: 9.4%
Drug Delivery: 13.5%
Drug MFG. 16.5%
REIT - Healthcare facilities: 24.6%
Disclosure: I don't invest in the healthcare sector, but the profit margin may not tell the entire story.
Profit margin is what they make after expenses. When the expenses include sending insurance salespeople to conferences in Hawaii, or on bonus trips to Italy, on top of the commission the salesperson is already earning, then I question the cost of insurance.
Profit margin is what they make after expenses. When the expenses include sending insurance salespeople to conferences in Hawaii, or on bonus trips to Italy, on top of the commission the salesperson is already earning, then I question the cost of insurance.
If the expenses were not necessary or justified another insurance company without those expenses would be able to sell insurance at a lower price and gain market share. Granted, insurance is not perfectly competitive, but it doesn't seem like they have nearly as much pricing power as other players in the health market.
The part you are missing is that is profit margin by revenue, not by equity.
For example,
Bob starts an auto manufacturer with 2billion of capital. His annual sales were 1 billion with a profit margin of 10% or $100million which equates to a 5% return on capital. His investors will be unhappy.
Joe starts an auto insurer, but only needs 100million in capital, his sales are 1 billion but his profit margin is only 2% or $20million but that equates to a 20% return on capital. His investors will be very happy.
The industries that you are comparing above have VASTLY different riskiness (I didn't even touch on the impact of various stock Beta's) and capitalization requirements.
If you have a lot of "brick and mortar" operations, expensive equipment, etc etc etc. you will need higher profit margins on revenue to generate a sufficient return to your shareholders.
As another example, in insurance you might see revenue to equity ratios of >5 for stable, predictable coverages like auto insurance, health insurance etc. but <1 for high-risk volatile types of insurance like hurricanes etc.
The part you are missing is that is profit margin by revenue, not by equity.
Correct, in the case of "REIT - Healthcare facilities: 24.6%" this refers to a Real Estate Investment Trust with shareholders that buys and operates healthcare facilities - this can be medical buildings or old folks home. The 24% refers to the real estate end only where they are the owner and property manager.
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