The Razor's Edge

2-Year Price History

A Word Of Caution

Allis-Chalmers Energy, Incorporated (ALY) 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 ALY before making an investment decision.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

ALY 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 9 years. For, ALY the high and low end of the Price to Sales per share ratios are 2.30x and 0.80x respectively.

Notice that ALY's current Price to Sales per share ratio is 0.23x, 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 $5.18, ALY is 86% below where we would expect to see it. This will beneficially factor into our final analysis of ALY as it is not often that this stock sinks to these levels.

ALY Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently ALY is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for ALY, the current level of Cash Earnings compared to its historical levels helps identify where ALY 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 13.02 and a historical low Cash Earnings per share ratio of 4.62, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for ALY? From the Ockham perspective, we are looking specifically at ALY to see if the market is recognizing the huge disparity between ALY's past stock price to Cash Earnings ratio to today's levels. At a difference of 85% 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 ALY. 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.

ALY Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company. As far as our investing methodology goes, it is not necessary to pay a dividend in order to get a favorable rating, so as for right now ALY gets a neutral rating for the dividend portion of the model. The company is not currently paying a dividend nor have they in the fairly recent past.