K Stock Report

2-Year Price History

Ockham’s Rating

K Revenue

As a value investing shop, we are interested in seeing how K’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 1.79x and the low end of the range at 1.42x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for K of 1.37x is below its historical average only slightly. So, while not a huge positive for our analysis, we do feel it is worth noting that K does look a bit undervalued on a Price to Sales basis, all other factors being equal. However, if the Price to Sales ratio drops further, Ockham Research is likely to become more bullish on this stock.

K Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of K, Ockham views their current Cash Earnings as below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for K, the current level of Cash Earnings compared to its historical levels helps identify where K 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 14.18 and a historical low Cash Earnings per share ratio of 11.20, an investor can relate where value becomes optimal.

With a historical average Cash Earnings ratio of 12.69, the current Cash Earnings ratio of 11.79 is a positive opportunity for value in the Ockham view. Naturally, we would love to see a deeper value opportunity for K, but to get there one of two things must occur (or both). Either the stock price must decline further to increase the long term buying opportunity, or the management at K needs to earn more cash. If either, or both, of these occur, then we could see a significant gap emerge between what investors were willing to pay for in the past, and where K is trading currently (latest close price of $46.82).

K Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In K’s case, the estimated annual dividend is $1.36 resulting in a current dividend yield of 2.90%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from K against the historic high and low levels over the past 10 years. The highest dividend yield from K over this period was 4.82% while the lowest dividend yield was 2.11% While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as K 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 16.31% below the median yield.