The Razor's Edge

2-Year Price History

WMI Revenue

As a value investing shop, we are interested in seeing how WMI'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 1.54x and the low end of the range at 1.12x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for WMI of 1.30x is slightly under its historical average. This level of Price to Sales gives us a fairly neutral position on the WMI 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.

WMI 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. WMI is below 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 WMI. For example, WMI's Cash Earnings ratio per share has fluctuated between 6.32 and 9.03 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where WMI is with respect to prior business periods.

So what does a Cash Earnings ratio below the historical norm mean for WMI? Generally, WMI's investors have paid slightly higher stock prices for this level of Cash Earnings, which bodes well as a return to historical norms is statistically likely. However, it is never a guarantee that history gives us proper direction, particularly in fluctuating market cycles. So by utilizing a long term view and incorporating other areas of analysis (like Sales, Dividends, and management analysis), each investor can gain a more complete view of WMI. Remember, that the average Cash Earnings level for WMI has been 7.67, so the current Cash Earnings level of 7.29 is a positive in our view, but by no means is it overwhelming.

WMI Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely.

When reviewing dividend yields for WMI, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. WMI’s estimated annual dividend is $1.08 resulting in a current dividend yield of 3.07%. The highest dividend yield from WMI over recent history was 3.92% while the lowest dividend yield was 0.00%. Looking for some “bang for your buck” then a dividend yield of 56.63% above the historically median should be enticing. WMI receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.