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Just How Big Is a Big Gross Margin?

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Investors love to toss around fundamental data points that are pretty meaningless without context. They will say “company ABC has very high gross margins” or “company XYZ’s gross margin last quarter dropped 65 bps to 33.4%”. OK, but what does that actually mean within the broader context of the global equity market? Does 50% gross margin qualify as a very high gross margin? Is 33.4% low compared to its competitors in its sector? In this post we going to hopefully provide a little context around gross margins so that the next time you read a quarterly report or hear someone going on about how they operate in a really high margin business you will be able to have a mental benchmark for these data points.

The median gross margin for a company in the developed world is 32.8%. If we look at it by region, DM Americas have the highest gross margins at 35.3% (if we carve out just the US median gross margins are 37.7%). DM EMEA has the second highest median gross margins at 31.9% and DM Asia is at 30.9%. While the median gross margin is just shy of 33%, 25% of companies have gross margins over 50%.



By sector, financials have by far the highest median gross margins while energy is at the clear low end of the range. Generally speaking, gross margins in each region are pretty similar, however, there are some exceptions. Real estate companies in DM Americas have much, much lower gross margins than in DM Asia or DM EMEA. DM Americas, on the other hand, have higher gross margins in information technology, financials, industrials, and utilities sectors.




DM Asia financial companies, in particular, have incredibly high margins. As we stated above, DM Americas financial companies have a higher median gross margin for the sector in aggregate. Remarkably, 29% of DM Asia financial companies have gross margins over 90% while just 7% of DM EMEA and 8.5% of DM Americas financial companies have a gross margin that high. Interestingly, when we look at the energy sector we find that DM Americas and DM EMEA energy companies have much higher gross margins than their DM Asia counterparts. 72.7% of DM Asia energy companies have gross margins below 20%. In DM Americas, 56% of energy companies have gross margins below 20% and in DM EMEA 61% have gross margins below 20%.









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