The Razor’s Edge

2-Year Price History

Ockham’s Rating

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BBY 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 BBY 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 0.44x and 0.22x respectively.

Utilizing this range we can see that BBY’s current Price to Sales per share ratio of 0.24x is significantly below its average levels historically. In fact, with a current price of $27.90, BBY is a full 29% 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 BBY.

BBY Cash Earnings

Looking at BBY specifically in their Cash Earnings capabilities, Ockham views BBY as significantly below 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 BBY 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 9.43 and a 4.63 low over the same period.

Now that BBY’s current price is $27.90 and its Price to Cash Earnings ratio is 5.10, we are very positive on its outlook from the cash earnings perspective. In fact, BBY is now trading a full 28% below its average historical Price to Cash Earnings ratio at these profit per share levels. When our clients ask us why BBY has great long term potential, the Cash Earnings levels to current stock is one of our primary reasons. But naturally, now we need for the overall market to recognize this disparity.

BBY 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 BBY against the historic high and low levels over an available data range. Because BBY has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In BBY’s case, the estimated annual dividend is $0.56 producing a current dividend yield of 2.01%. The highest dividend yield from BBY in recent history was 3.41% while the lowest dividend yield was 0.00%. If you are looking for some “bang for your buck” then a dividend yield of 17.89% above the historical median should be enticing. BBY receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.