The Razor's Edge

2-Year Price History

A Word Of Caution

Noble Corporation (NE) 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 NE before making an investment decision.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

NE Revenue

As a value investing shop, we are interested in seeing how NE'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 5.69x and the low end of the range at 3.53x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for NE of 1.49x is well below its normal historic Price to Sales levels. At a price of $23.75, NE is 68% 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.

NE Cash Earnings

Looking at NE specifically in their Cash Earnings capabilities, Ockham views NE 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 NE. For example, NE's Cash Earnings ratio per share has fluctuated between 8.51 and 13.66 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where NE is with respect to prior business periods.

So with NE's current price (latest close of $23.75) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, NE is 76% 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 NE.

NE 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 NE 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 NE is $0.16 producing a current dividend yield of 0.67%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from NE 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 NE over previous years was 0.83% while the lowest dividend yield was 0.00%. If you are looking for some “bang for your buck” then a dividend yield of 61.45% above the historically median should be enticing. NE receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.