The Razor’s Edge

2-Year Price History

Ockham’s Rating

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STT Revenue

As a value investing shop, we are interested in seeing how STT’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 2.91x and the low end of the range at 1.75x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for STT of 1.30x is well below its normal historic Price to Sales levels. At a price of $36.32, STT is 45% 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.

STT Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company’s value, and currently STT is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for STT, the current level of Cash Earnings compared to its historical levels helps identify where STT 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 23.88 and a historical low Cash Earnings per share ratio of 14.61, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for STT? From the Ockham perspective, we are looking specifically at STT to see if the market is recognizing the huge disparity between STT’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 55% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at STT. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

STT 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 STT’s case, the estimated annual dividend is $0.04 resulting in a current dividend yield of 0.11%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from STT against the historic high and low levels over the past 10 years. The highest dividend yield from STT over this period was 3.36% while the lowest dividend yield was 0.05% While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as STT 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 93.55% below the median yield.