The Razor's Edge

2-Year Price History

A Word Of Caution

Stocks trading for less than $1 are loosely termed "penny" stocks. Rockford Corporation (ROFO) is selling for less than $1 per share. While, we stand by our ratings methodology for long term value investors, often times "penny" stocks will be more volatile. Because many "penny" stocks are lightly traded their stock price can fluctuate because of a single large trade. Also, there is generally less analyst coverage of such "penny" stocks and thus less information from which to base our rating.

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

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

ROFO Revenue

As a value investing shop, we are interested in seeing how ROFO's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.41x and the low end of the range at 0.20x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for ROFO of 0.07x is well below its normal historic Price to Sales levels. At a price of $0.64, ROFO is 76% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

ROFO Cash Earnings

When there is not enough positive Cash Earnings history available for a company, we at Ockham Research can find it quite difficult to actually rate their ability to generate cash. Such is the case with ROFO. When a company has current positive cash earnings but not enough years of history to compare it to, we find the correlation of cash earnings to valuation significantly hindered. So with ROFO, we will have to wait to see if there are a few more cycles of positive Cash Earnings numbers before we will be confident in our Cash Earnings analysis.

ROFO 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. While we do like to see companies with healthy and growing dividends, it is not appropriate for all companies, especially those focused on growth. We regard ROFO as neutral in terms of dividends because they have no history of paying a dividend and continue to reinvest that money for growth purposes.