The Razor’s Edge

2-Year Price History

A Word Of Caution

Companhia Siderurgica Nacional ADS (SID) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.

Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.

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

Ockham’s Rating

Rating Specific Information Withheld Premium Access Only

SID Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company’s stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, SID the high and low end of the Price to Sales per share ratios are 2.50x and 0.93x respectively.

Notice that SID’s current Price to Sales per share ratio is 1.04x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $13.73, SID is 40% below where we would expect to see it. This will beneficially factor into our final analysis of SID as it is not often that this stock sinks to these levels.

SID Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. SID is 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 SID. For example, SID’s Cash Earnings ratio per share has fluctuated between 3.22 and 8.27 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where SID is with respect to prior business periods.

So with SID’s current price (latest close of $13.73) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, SID is 43% 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 SID.

SID Dividends

When determining a company’s future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn’t imperative for SID to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for SID is $1.74 producing a current dividend yield of 12.67%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from SID against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from SID over previous years was 22.11% while the lowest dividend yield was 1.29%. Management at SID has encouraged us with a current dividend yield of 8.29% above the historical median.