The Razor's Edge

2-Year Price History

A Word Of Caution

While, we stand by our ratings methodology for long term value investors, sometimes smaller companies will be more volatile in terms of revenue, cash earnings, and other fundamental factors. Hypercom Corporation (HYC) is such a stock. Because many micro-caps are lightly traded their stock price can fluctuate because of a single large trade. Also, there is less analyst coverage of such micro-caps and therefore less information from which to base our ratings.

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

Ockham's Rating

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HYC 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, HYC the high and low end of the Price to Sales per share ratios are 1.58x and 0.78x respectively.

Notice that HYC's current Price to Sales per share ratio is 0.13x, 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 $1.31, HYC is 89% below where we would expect to see it. This will beneficially factor into our final analysis of HYC as it is not often that this stock sinks to these levels.

HYC 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 HYC, 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 HYC, the current level of Cash Earnings compared to its historical levels helps identify where HYC 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 60.88 and a historical low Cash Earnings per share ratio of 38.41, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for HYC? From the Ockham perspective, we are looking specifically at HYC to see if the market is recognizing the huge disparity between HYC's past stock price to Cash Earnings ratio to today's levels. At a difference of 94% 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 HYC. 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.

HYC 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. As far as our investing methodology goes, it is not necessary to pay a dividend in order to get a favorable rating, so as for right now HYC gets a neutral rating for the dividend portion of the model. The company is not currently paying a dividend nor have they in the fairly recent past.