The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

PDE Revenue

As a value investing shop, we are interested in seeing how PDE'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 2.62x and the low end of the range at 1.35x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for PDE of 1.00x is well below its normal historic Price to Sales levels. At a price of $16.21, PDE is 50% 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.

PDE 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 PDE, 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 PDE. For example, PDE's Cash Earnings ratio per share has fluctuated between 5.67 and 10.92 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where PDE is with respect to prior business periods.

So with PDE's current price (latest close of $16.21) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, PDE is 57% 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 PDE.

PDE 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. PDE 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 PDE initiates paying a dividend, we will begin to factor this into the Ockham approach.