The Razor's Edge

2-Year Price History

Ockham's Rating

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VLO Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at VLO through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 0.35x and 0.17x respectively.

Utilizing this range we can see that VLO’s current Price to Sales per share ratio of 0.07x is significantly below its average levels historically. In fact, with a current price of $18.35, VLO is a full 75% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for VLO.

VLO 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 VLO, Ockham views their current Cash Earnings as significantly below its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for VLO to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 6.87 and a 3.15 low over the same period.

Now that VLO’s current price is $18.35 and its Price to Cash Earnings ratio is 1.76, we are very positive on its outlook from the cash earnings perspective. In fact, VLO is now trading a full 65% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why VLO has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

VLO 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.

When reviewing dividend yields for VLO, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. VLO’s estimated annual dividend is $0.60 resulting in a current dividend yield of 3.27%. The highest dividend yield from VLO over recent history was 4.30% while the lowest dividend yield was 0.32%. If you are looking for some “bang for your buck” then a dividend yield of 41.56% above the historically median should be enticing. VLO receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.