The Razor's Edge

2-Year Price History

A Word Of Caution

Stocks trading for less than $1 are loosely termed "penny" stocks. Nexgen Biofuels Limited (NXGNF) is selling for less than $1 per share. While, we stand by our ratings methodology for long term value investors, often times "penny" stocks will be more volatile. Because many "penny" stocks are lightly traded their stock price can fluctuate because of a single large trade. Also, there is generally less analyst coverage of such "penny" stocks and thus less information from which to base our rating.

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

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

NXGNF 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, NXGNF the high and low end of the Price to Sales per share ratios are 2.18x and 0.66x respectively.

Notice that NXGNF's current Price to Sales per share ratio is 0.45x, 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 $0.15, NXGNF is 68% below where we would expect to see it. This will beneficially factor into our final analysis of NXGNF as it is not often that this stock sinks to these levels.

NXGNF Cash Earnings

Looking at NXGNF specifically in their Cash Earnings capabilities, Ockham views NXGNF as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for NXGNF, the current level of Cash Earnings compared to its historical levels helps identify where NXGNF 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 48.26 and a historical low Cash Earnings per share ratio of 15.52, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for NXGNF? From the Ockham perspective, we are looking specifically at NXGNF to see if the market is recognizing the huge disparity between NXGNF's past stock price to Cash Earnings ratio to today's levels. At a difference of 77% 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 NXGNF. 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.

NXGNF 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 NXGNF to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. NXGNF 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 NXGNF initiates paying a dividend, we will begin to factor this into the Ockham approach.