IMA Investment Analysis Report & Stock Research, Inverness Medical Innovations, Inc.

Ockham's Rating/Recommendation Summary

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IMA Revenue

Cash earnings is the most important factor in our analysis, but 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, IMA the high and low end of the Price to Sales per share ratios are 3.35x and 1.61x respectively.

Notice that IMA's current Price to Sales per share ratio is 1.76x, 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 $40.40, IMA is 29% below where we would expect to see it. This will beneficially factor into our final analysis of IMA as it is not often that this stock sinks to these levels.

IMA 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. IMA is significantly below its historical average multiple of Cash Earnings. Looking at the last 8 years we can get a good understanding of what investors have grown to expect from IMA. For example, IMA's Cash Earnings ratio per share has fluctuated between 24.17 and 45.89 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where IMA is with respect to prior business periods.

So with IMA's current price (latest close of $40.40) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, IMA is 71% 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 IMA.

IMA Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company. IMA may pay a dividend at this time; however, there is an insufficient amount of history to incorporate it into our analysis. Therefore, we are not utilizing the dividends or lack thereof in our study. As IMA more consistent dividend history is made available, we will begin to factor this into the Ockham approach.