Quick Look at ReShape Lifesciences (RSLS)'s Margins

Shares of Small-cap Medical Instruments & Supplies company ReShape Lifesciences were up 40.9% during today's morning session, as the S&P 500 posted a -1.0% change. Today's upwards movement shows that investor interest in RSLS stock is strong -- but how closely have they studied the company's margins?

While ReShape Lifesciences's gross margins for the last year are positive, we are concerned that the company's operating margins are in the red. Gross margins take into account only the cost of revenue, or variable costs -- meaning the cost directly associated with producing the products or providing the service offered by the company.

Operating margins, on the other hand, take into account the company's overhead as well. Overhead, also called fixed costs, includes the company's rent, salaries for personnel not included in cost of revenue, equipment and supplies, amortization, and depreciation. Operating margins tell you about how efficiently ReShape Lifesciences is run, and gross margins tell you how profitable its product line is.

The table above tells us that, on average, ReShape Lifesciences has not been profitable over the last four years, which should be a warning sign to prospective investors. One bright spot, however, is that the company's operating margins are growing at an average yearly rate of 3.0%.