The Razor’s Edge

2-Year Price History

Ockham’s Rating

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AEM Revenue

As a value investing shop, we are interested in seeing how AEM’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 9.94x and the low end of the range at 4.51x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for AEM of 9.55x is well above its historical average. This means that AEM looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 32% just to return AEM to its historical average.

AEM 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 AEM 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 AEM. For example, AEM’s Cash Earnings ratio per share has fluctuated between 20.38 and 42.60 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where AEM is with respect to prior business periods.

So what does this tell us about AEM in particular? Basically, we would value the current level of Cash Earnings per share (which is at 36.50) as significantly overvalued. Just by looking at the last closing price of AEM, which was $55.48, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded AEM 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 AEM 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.

AEM 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 of a company’s inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from AEM against the historic high and low levels over an available data range. Because AEM has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In AEM’s case, the estimated annual dividend is $0.18 producing a current dividend yield of 0.32%. The highest dividend yield from AEM in recent history was 0.86% while the lowest dividend yield was 0.07%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as AEM that has a history of paying dividends it is disappointing to see their dividend yield drop so significantly. At this time, the current dividend yield is 31.18% below the median yield.