The Razor's Edge

2-Year Price History

RSG Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at RSG through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 1.83x and 1.35x respectively.

Utilizing this range we can see that RSG’s current Price to Sales per share ratio of 1.89x is significantly above its historical average. This places RSG at the upper end of its historical range relative to sales per share and makes it difficult to suggest an attractive price outlook. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 18% merely to return RSG to its historical average.

RSG Cash Earnings

Looking at RSG specifically in their Cash Earnings capabilities, Ockham views RSG as above its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for RSG to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 10.06 and a 7.37 low over the same period.

Given this range of ratios per share, RSG at its current price of $33.21 and a Price to Cash Earnings ratio of 9.46 is 8% above its average historical Price to Cash Earnings ratio. Obviously this makes us more hesitant about RSG because cash earnings would need to rise to improve the valuation. Likewise, a decline in Price to Cash Earnings to below the average of 8.71 would significantly improve our outlook for RSG given the current profit levels.

RSG Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from RSG against the historic high and low levels over an available data range. Because RSG has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In RSG’s case, the estimated annual dividend is $0.68 producing a current dividend yield of 2.05%. The highest dividend yield from RSG in recent history was 2.49% while the lowest dividend yield was 0.00%. Looking for some “bang for your buck” then a dividend yield of 64.66% above the historically median should be enticing. RSG receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.