The Razor's Edge

2-Year Price History

IMAX Revenue

As a value investing shop, we are interested in seeing how IMAX'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 3.03x and the low end of the range at 1.11x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for IMAX of 2.37x is slightly above its historical average. This level of Price to Sales gives us a fairly neutral position on the shares. We would like to see a drop in the Price to Sales ratio of 14% given current sales figures before we would become more positive on a Price to Sales basis. Such a drop would put Price to Sales per share in line with IMAX's weighted historical average.

IMAX Cash Earnings

Looking at IMAX specifically in their Cash Earnings capabilities, Ockham views IMAX as significantly above 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 IMAX. For example, IMAX's Cash Earnings ratio per share has fluctuated between 7.18 and 20.72 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where IMAX is with respect to prior business periods.

So what does this tell us about IMAX in particular? Basically, we would value the current level of Cash Earnings per share (which is at 70.60) as significantly overvalued. Just by looking at the last closing price of IMAX, which was $7.06, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded IMAX with a higher stock price. So basically, we don't view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that IMAX may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.

IMAX 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 IMAX to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. 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 IMAX as neutral in terms of dividends because they have no history of paying a dividend and continue to reinvest that money for growth purposes.