The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

SWN 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 SWN 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 6.04x and 2.78x respectively.

Utilizing this range we can see that SWN’s current Price to Sales per share ratio of 4.32x is somewhat below its historical weighted average by 3%. Given this level of sales per share, we suggest a neutral share price forecast. To the extent there is a further drop in the Price to Sales ratio from current levels, which would occur through some combination of increased sales per share or a decline in share price, we would only become more positive about the Price to Sales ratio outlook.

SWN 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 SWN, Ockham views their current Cash Earnings as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for SWN, the current level of Cash Earnings compared to its historical levels helps identify where SWN 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 17.67 and a historical low Cash Earnings per share ratio of 8.08, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for SWN? From the Ockham perspective, we are looking specifically at SWN to see if the market is recognizing the huge disparity between SWN's past stock price to Cash Earnings ratio to today's levels. At a difference of 17% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at SWN. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

SWN 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. Although SWN has paid a dividend in the past, they aren’t currently. Additionally, we like to look at several years of consistent dividends to add this to our analysis framework. Therefore, given this, the dividend is not currently figured into our analysis.