ARJ Investment Analysis Report & Stock Research, Arch Chemicals, Inc.

Ockham's Rating/Recommendation Summary

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ARJ Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at ARJ through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 0.74x and 0.44x respectively.

Utilizing this range we can see that ARJ’s current Price to Sales per share ratio of 0.62x is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about ARJ we would need to see a drop in the Price to Sales ratio of 4% given current sales per share levels in order to return to its historical weighted average.

ARJ Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. ARJ is below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for ARJ, the current level of Cash Earnings compared to its historical levels helps identify where ARJ is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 12.96 and a historical low Cash Earnings per share ratio of 7.70, an investor can relate where value becomes optimal.

With a historical average Cash Earnings ratio of 10.33, the current Cash Earnings ratio of 9.14 is a positive opportunity for value in the Ockham view. Naturally, we would love to see a deeper value opportunity for ARJ, but to get there one of two things must occur (or both). Either the stock price must decline further to increase the long term buying opportunity, or the management at ARJ needs to earn more cash. If either, or both, of these occur, then we could see a significant gap emerge between what investors were willing to pay for in the past, and where ARJ is trading currently (latest close price of $34.17).

ARJ Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from ARJ against the historic high and low levels over an available data range. Because ARJ has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In ARJ’s case, the estimated annual dividend is $0.80 producing a current dividend yield of 2.34%. The highest dividend yield from ARJ in recent history was 5.32% while the lowest dividend yield was 1.67%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as ARJ that has a history of paying dividends it is disappointing to see their dividend yield drop so significantly. At this time, the current dividend yield is 33.05% below the median yield.