BBI Stock Report

2-Year Price History

A Word Of Caution

Stocks trading for less than $1 are loosely termed "penny" stocks. Blockbuster Inc. (BBI) is selling for less than $1 per share. While we stand by our ratings methodology for long term value investors, often times "penny" stocks will be more volatile. Because many "penny" stocks are lightly traded their stock price can fluctuate because of a single large trade. Also, there is generally less analyst coverage of such "penny" stocks and thus less information from which to base our rating.

While this company may not get as much press because of its low stock price, please take a moment to look at the RazorWire feed on the left had side of the report. Each time Blockbuster Inc Cl A is mentioned on business television recently should be displayed. This helps to bring you up to speed on any major issues they are facing right now.

Therefore, (and as always), check additional sources and available information regarding Blockbuster Inc Cl A before making an investment decision.

Ockham’s Rating

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BBI Revenue

As a value investing shop, we are interested in seeing how BBI’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 0.40x and the low end of the range at 0.15x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for BBI of 0.03x is well below its normal historic Price to Sales levels. At a price of $0.82, BBI is 90% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

BBI Cash Earnings

Looking at BBI specifically in their Cash Earnings capabilities, Ockham views BBI as significantly 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 BBI. For example, BBI’s Cash Earnings ratio per share has fluctuated between 1.57 and 3.67 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where BBI is with respect to prior business periods.

So with BBI’s current price (latest close of $0.82) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, BBI is 87% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn’t exist in a vacuum. So if the market doesn’t recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with BBI.

BBI 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.