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. Steinway Musical Instruments, Inc. (LVB) 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 LVB before making an investment decision.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

LVB Revenue

As a value investing shop, we are interested in seeing how LVB'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 0.69x and the low end of the range at 0.43x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for LVB of 0.37x is well below its normal historic Price to Sales levels. At a price of $17.82, LVB is 35% 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.

LVB Cash Earnings

Looking at LVB specifically in their Cash Earnings capabilities, Ockham views LVB as significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from LVB. For example, LVB's Cash Earnings ratio per share has fluctuated between 8.35 and 13.33 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where LVB is with respect to prior business periods.

So with LVB's current price (latest close of $17.82) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, LVB is 41% 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 LVB.

LVB 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. Although LVB has paid a dividend in the past, they aren’t currently. Additionally, we like to look at several years of consistent dividends to add this to our analysis framework. Therefore, given this, the dividend is not currently figured into our analysis.