The Razor's Edge

2-Year Price History

A Word Of Caution

Petroleo Brasileiro SA ADR (PBR) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.

Therefore, (and as always), check additional sources and available information regarding PBR before making an investment decision.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

PBR Revenue

As a value investing shop, we are interested in seeing how PBR'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 1.94x and the low end of the range at 0.75x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for PBR of 0.73x is well below its normal historic Price to Sales levels. At a price of $20.94, PBR is 46% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

PBR Cash Earnings

Looking at PBR specifically in their Cash Earnings capabilities, Ockham views PBR as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for PBR, the current level of Cash Earnings compared to its historical levels helps identify where PBR 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 8.75 and a historical low Cash Earnings per share ratio of 3.35, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for PBR? From the Ockham perspective, we are looking specifically at PBR to see if the market is recognizing the huge disparity between PBR's past stock price to Cash Earnings ratio to today's levels. At a difference of 50% 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 PBR. 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.

PBR Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for PBR to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for PBR is $0.07 producing a current dividend yield of 0.33%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from PBR against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from PBR over previous years was 3.67% while the lowest dividend yield was 0.00%. With that range in mind, PBR’s current dividend yield is a full 82.02% below its median dividend yield historically. This is a negative from our perspective.