The Razor's Edge

2-Year Price History

A Word Of Caution

Peabody Energy Corporation (BTU) 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 BTU before making an investment decision.

Ockham's Rating

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BTU 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 BTU through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 9 years are 2.77x and 1.06x respectively.

Utilizing this range we can see that BTU’s current Price to Sales per share ratio of 0.81x is significantly below its average levels historically. In fact, with a current price of $23.43, BTU is a full 58% 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 BTU.

BTU 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 BTU, Ockham views their current Cash Earnings as 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 BTU. For example, BTU's Cash Earnings ratio per share has fluctuated between 6.98 and 17.44 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where BTU is with respect to prior business periods.

So with BTU's current price (latest close of $23.43) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, BTU is 73% 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 BTU.

BTU 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 BTU, 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. BTU’s estimated annual dividend is $0.24 resulting in a current dividend yield of 1.02%. The highest dividend yield from BTU over recent history was 2.43% while the lowest dividend yield was 0.27%. It is never a good sign for a company to pay significantly lower dividends, in this case 24.44% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.