ESI Investment Analysis Report & Stock Research, ITT Educational Services, Inc.

Ockham's Rating/Recommendation Summary

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ESI 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 ESI 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 4.92x and 2.71x respectively.

Utilizing this range we can see that ESI’s current Price to Sales per share ratio of 2.64x is significantly below its average levels historically. In fact, with a current price of $94.11, ESI is a full 31% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for ESI.

ESI Cash Earnings

As the old saying goes, "Cash is King!" We look at reported Cash Earnings, but the main emphasis of our analysis involves stripping out non-cash events such as depreciation from our cash earnings analysis. This helps us view the cash flows more clearly. Nevertheless, an analysis of Cash Earnings (both reported and otherwise) is absolutely pivotal to assessing a company's value, and currently ESI is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for ESI, the current level of Cash Earnings compared to its historical levels helps identify where ESI is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 24.84 and a historical low Cash Earnings per share ratio of 13.49, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for ESI? From the Ockham perspective, we are looking specifically at ESI to see if the market is recognizing the huge disparity between ESI's past stock price to Cash Earnings ratio to today's levels. At a difference of 39% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at ESI. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

ESI 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 ESI to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis. As of the time of this report, our data provider does not have historical data for ESI. Therefore, we are not utilizing the dividends portion in our study. So, we do not know whether ESI currently pays a dividend at present or not, we have an "expected dividend" payment listed in key fundamentals but cannot varify it.