The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

RRC Revenue

As a value investing shop, we are interested in seeing how RRC's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 5.80x and the low end of the range at 2.96x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for RRC of 3.81x is slightly under its historical average. This level of Price to Sales gives us a fairly neutral position on the RRC shares. We would like to see a drop in the Price to Sales ratio just a little bit more (given current sales figures) before we would become more positive on a Price to Sales basis. Such a drop would increase the attractiveness of the stock but, as always, would need to be considered in the context of all other valuation factors.

RRC Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of RRC, Ockham views their current Cash Earnings as below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from RRC. For example, RRC's Cash Earnings ratio per share has fluctuated between 6.01 and 11.79 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where RRC is with respect to prior business periods.

So what does a Cash Earnings ratio below the historical norm mean for RRC? Generally, RRC's investors have paid slightly higher stock prices for this level of Cash Earnings, which bodes well as a return to historical norms is statistically likely. However, it is never a guarantee that history gives us proper direction, particularly in fluctuating market cycles. So by utilizing a long term view and incorporating other areas of analysis (like Sales, Dividends, and management analysis), each investor can gain a more complete view of RRC. Remember, that the average Cash Earnings level for RRC has been 8.90, so the current Cash Earnings level of 8.30 is a positive in our view, but by no means is it overwhelming.

RRC Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In RRC’s case, the estimated annual dividend is $0.16 resulting in a current dividend yield of 0.43%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from RRC against the historic high and low levels over the past 10 years. The highest dividend yield from RRC over this period was 0.67% while the lowest dividend yield was 0.00% If you are looking for some “bang for your buck” then a dividend yield of 28.36% above the historically median should be enticing. RRC receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.