The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

GIS Revenue

As a value investing shop, we are interested in seeing how GIS'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 1.78x and the low end of the range at 1.43x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for GIS of 1.49x is slightly under its historical average. This level of Price to Sales gives us a fairly neutral position on the GIS shares. We would like to see a drop in the Price to Sales ratio just a little bit more (given current sales figures) before we would become more positive on a Price to Sales basis. Such a drop would increase the attractiveness of the stock but, as always, would need to be considered in the context of all other valuation factors.

GIS 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. GIS is below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for GIS, the current level of Cash Earnings compared to its historical levels helps identify where GIS 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 14.32 and a historical low Cash Earnings per share ratio of 11.48, an investor can relate where value becomes optimal.

With a historical average Cash Earnings ratio of 12.90, the current Cash Earnings ratio of 11.72 is a positive opportunity for value in the Ockham view. Naturally, we would love to see a deeper value opportunity for GIS, but to get there one of two things must occur (or both). Either the stock price must decline further to increase the long term buying opportunity, or the management at GIS needs to earn more cash. If either, or both, of these occur, then we could see a significant gap emerge between what investors were willing to pay for in the past, and where GIS is trading currently (latest close price of $63.17).

GIS Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for GIS to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for GIS is $1.72 producing a current dividend yield of 2.72%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from GIS against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from GIS over previous years was 3.74% while the lowest dividend yield was 2.08%. Management at GIS needs to get the current dividend yield above the historical median before we are comfortable from this point of view.