The Razor’s Edge

2-Year Price History

A Word Of Caution

The Ockham Research Team has placed an alert on this security because there have been significant developments associated with Citigroup, Inc. (C). Eventually, these externalities may have an impact on our valuation but these recent events have not yet been fully factored into our analysis.

Please take a moment to look at the RazorWire feed on the left had side of the report. Each mention of Citigroup, Inc. on business television will be displayed to the right of the report. This should help bring you up to speed on any major issues they are facing right now.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect these significant factors surrounding this company as our data sources are still being updated. This alert shall remain in effect until the situation surrounding this security normalizes substantially.

Therefore, (and as always), check additional sources and available information regarding C before making an investment decision.

Ockham’s Rating

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C Revenue

As a value investing shop, we are interested in seeing how C’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 2.12x and the low end of the range at 1.25x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for C of 0.14x is well below its normal historic Price to Sales levels. At a price of $3.19, C is 92% 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.

C Cash Earnings

When reviewing a company and their prospects for success, it is necessary to analyze their ability to generate positive Cash Earnings. This is a vital component to our analysis, because as a long term investment research firm, there are few factors more closely tied to the valuation of a company as Cash Earnings. In the case of C, it appears that either the current estimate for Cash Earnings is negative or C is not likely to generate positive Cash Earnings based upon their prior performance in the last several quarters. Remember that Cash Earnings is not the only way to value a company’s potential, but in our analysis it is the most important. Thus, for our analysis C receives a negative score from a Cash perspective. At Ockham, we are fond of saying "Cash is King," and in this case the company is not generating any. If a company is not able to generate a profit then there is no reason to invest in them. Unless of course you believe in the story, and hope it will eventually lead to a profitable enterprise.

C 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 C against the historic high and low levels over an available data range. Because C has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In C’s case, the estimated annual dividend is $0.04 producing a current dividend yield of 1.25%. The highest dividend yield from C in recent history was 36.72% while the lowest dividend yield was 0.15%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as C 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 93.22% below the median yield.