The Razor's Edge

2-Year Price History

AW Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, 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, AW the high and low end of the Price to Sales per share ratios are 0.77x and 0.45x respectively.

Notice that AW's current Price to Sales per share ratio is 0.79x, which is high enough compared with historical norms of AW to cause some concern. The current Price to Sales per share is near the upper end of the historical range. In our eyes, this is a negative factor because it is more likely that it will return to the normal range than continue rising outside of the range. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 30% merely to return AW to its historical average.

AW Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently AW is 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 AW. For example, AW's Cash Earnings ratio per share has fluctuated between 3.80 and 6.70 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where AW is with respect to prior business periods.

So what does this tell us about AW in particular? Basically, we would value the current level of Cash Earnings per share (which is at 6.13) as significantly overvalued. Just by looking at the last closing price of AW, which was $13.36, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded AW 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 AW 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.

AW 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 AW to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. AW is not paying a dividend at this time, nor do they have a history of paying a dividend for the last 10 years plus. Therefore, we are not utilizing the dividends portion in our study. If AW initiates paying a dividend, we will begin to factor this into the Ockham approach.