The Razor's Edge

2-Year Price History

A Word Of Caution

While, we stand by our ratings methodology for long term value investors, sometimes smaller companies will be more volatile in terms of revenue, cash earnings, and other fundamental factors. Boots & Coots International Well Control, Incorporated (WEL) is such a stock. Because many micro-caps are lightly traded their stock price can fluctuate because of a single large trade. Also, there is less analyst coverage of such micro-caps and therefore less information from which to base our ratings.

Therefore, (and as always), check additional sources and available information regarding WEL before making an investment decision.

Ockham's Rating

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WEL 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, WEL the high and low end of the Price to Sales per share ratios are 3.58x and 0.62x respectively.

Notice that WEL's current Price to Sales per share ratio is 0.53x, 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 $1.20, WEL is 75% below where we would expect to see it. This will beneficially factor into our final analysis of WEL as it is not often that this stock sinks to these levels.

WEL 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 WEL is significantly below its historical average multiple of Cash Earnings. Looking at the last 9 years we can get a good understanding of what investors have grown to expect from WEL. For example, WEL's Cash Earnings ratio per share has fluctuated between 5.11 and 18.15 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where WEL is with respect to prior business periods.

So with WEL's current price (latest close of $1.20) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, WEL is 75% 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 WEL.

WEL Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations. While we do like to see companies with healthy and growing dividends, it is not appropriate for all companies, especially those focused on growth. We regard WEL as neutral in terms of dividends because they have no history of paying a dividend and continue to reinvest that money for growth purposes.