The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

ERF 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, ERF the high and low end of the Price to Sales per share ratios are 4.02x and 2.49x respectively.

Notice that ERF's current Price to Sales per share ratio is 1.32x, 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 $23.19, ERF is 60% below where we would expect to see it. This will beneficially factor into our final analysis of ERF as it is not often that this stock sinks to these levels.

ERF 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 ERF, Ockham views their current Cash Earnings as significantly 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 ERF. For example, ERF's Cash Earnings ratio per share has fluctuated between 4.63 and 7.59 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where ERF is with respect to prior business periods.

So with ERF's current price (latest close of $23.19) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, ERF is 49% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with ERF.

ERF 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.

When reviewing dividend yields for ERF, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. ERF’s estimated annual dividend is $3.84 resulting in a current dividend yield of 16.56%. The highest dividend yield from ERF over recent history was 22.50% while the lowest dividend yield was 1.32%. It's hard not to notice that ERF pays a current dividend yield that is 39.04% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.