What are low-margin securities?
Low-margin securities refer to shares in companies with low profit margins. They’re often overlooked by investors because it’s only natural you'd prefer a company that makes as much profit as it can from every pound of revenue. But some low-margin securities can turn out to be good investments.
Where have you heard about low-margin securities?
You might have seen articles online and in investor newsletters pointing you in the direction of attractive low-margin securities. There are some real diamonds in the rough to be found if you look close enough, but of course there are also ones to avoid.
What you need to know about low-margin securities.
Low-margin securities are typically found in highly competitive industries, including airlines, high street retailers and supermarkets.
Buying shares in a company with a low profit margin isn’t necessarily a poor investment. Its margins could be low for a number of reasons. For example, a new business might have a low margin because it’s incurring start-up costs each quarter. Once those have been paid off, the share price could blossom, rewarding investors who bought shares when margins were low.
When deciding where and when to invest, it’s important to look at the potential for growth and not just profit margin.
Find out more about low-margin securities.
To learn more about low-margin securities and how they could fit into your share selection, see our definition of portfolio.