The Razor's Edge

2-Year Price History

GW Stock Evaluation

We are reiterating our rating of Buy on GW at this time. As described in the Recommendation Summary, we have not seen any additional guidance or change in expectations to GW’s earnings, but we have seen a relatively significant increase in its share price of 3.49%. This increase in price is significant and should be noted as we look further into the fundamental picture of GW below.

GW 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, GW the high and low end of the Price to Sales per share ratios are 2.51x and 1.32x respectively.

Notice that GW's current Price to Sales per share ratio is 1.70x, which is below its historical average only slightly. So, while not a huge positive for our analysis, we do feel it is worth noting that GW does look a bit undervalued on a Price to Sales basis, all other factors being equal. However, if the Price to Sales ratio drops further, Ockham Research is likely to become more bullish on this stock.

GW 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 GW, Ockham views their current Cash Earnings as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for GW, the current level of Cash Earnings compared to its historical levels helps identify where GW 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 16.01 and a historical low Cash Earnings per share ratio of 8.91, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for GW? From the Ockham perspective, we are looking specifically at GW to see if the market is recognizing the huge disparity between GW's past stock price to Cash Earnings ratio to today's levels. At a difference of 51% 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 GW. 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.

GW 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. GW 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 GW initiates paying a dividend, we will begin to factor this into the Ockham approach.