The Razor's Edge

2-Year Price History

NOV 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 NOV 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 2.06x and 0.98x respectively.

Utilizing this range we can see that NOV’s current Price to Sales per share ratio of 1.72x is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about NOV we would need to see a drop in the Price to Sales ratio of 13% given current sales per share levels in order to return to its historical weighted average.

NOV Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. NOV is 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 NOV 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 23.62 and a 11.47 low over the same period.

Now that NOV’s current price is $61.86 and its Price to Cash Earnings ratio is 12.47, we are very positive on its outlook from the cash earnings perspective. In fact, NOV is now trading a full 29% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why NOV 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.

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