NWS Revenue

As a value investing shop, we are interested in seeing how NWS'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 9 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 2.21x and the low end of the range at 1.45x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for NWS of 1.18x is well below its normal historic Price to Sales levels. At a price of 14.62, NWS is 36% 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.

NWS 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 NWS, Ockham views their current Cash Earnings as above its historical average multiple of Cash Earnings. Looking at the last 9 years we can get a good understanding of what investors have grown to expect from NWS. For example, NWS's Cash Earnings ratio per share has fluctuated between 19.36 and 28.01 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where NWS is with respect to prior business periods.

So when we look at NWS, what does this slightly higher than historical level of Price to Cash Earnings mean? From the Ockham perspective, it basically represents that the market has a higher stock price attributed to this level of Cash Earnings than compared to normal. So while we view this as a negative from a valuation perspective, it certainly doesn't mean that NWS couldn't rapidly improve in its value from other factors or a decline in stock price. The current Price to Cash Earnings level of 26.22 is 10% above the historical norm as calculated at Ockham. So a decline in stock price, or more hopefully, an increase in NWS's Cash Earnings levels would improve our outlook for the stock.

NWS 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 NWS against the historic high and low levels over an available data range. Because NWS has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In NWS’s case, the estimated annual dividend is 0.14 producing a current dividend yield of 0.92%. The highest dividend yield from NWS in recent history was 2.14% while the lowest dividend yield was 0.18%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as NWS 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 20.38% below the median yield.