The Razor's Edge

2-Year Price History

A Word Of Caution

Atwood Oceanics, Incorporated (ATW) 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 ATW before making an investment decision.

Ockham's Rating

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ATW Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, ATW the high and low end of the Price to Sales per share ratios are 6.27x and 3.19x respectively.

Notice that ATW's current Price to Sales per share ratio is 1.53x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $17.52, ATW is 68% below where we would expect to see it. This will beneficially factor into our final analysis of ATW as it is not often that this stock sinks to these levels.

ATW 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 ATW, Ockham views their current Cash Earnings as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for ATW to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 19.99 and a 10.07 low over the same period.

Now that ATW’s current price is $17.52 and its Price to Cash Earnings ratio is 2.98, we are very positive on its outlook from the cash earnings perspective. In fact, ATW is now trading a full 81% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why ATW has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

ATW Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely. ATW is not paying a dividend at this time, nor do they have a history of paying a dividend for the last 10 years plus. Therefore, we are not utilizing the dividends portion in our study. If ATW initiates paying a dividend, we will begin to factor this into the Ockham approach.