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Report example for ICO -- INTERNATIONAL CO. (27Jan2010)
Technical Analysis
ICO like many stocks touched its bottom in March09
nowadays International Co is retracing from top 5.08(October21-09)
to average area around $4.00.As you read in my fundamental analysis this does not
concern my rating at this point.
Support at 3.5 should stop an eventual break down from 3.7 price.
Indicator MFI shows positive divergence on last trading day (28Jan) and this could
be seen as positive for ICO keeping its level of price.
ICO Stock Evaluation
I am still positive on ICO and I feel confident in maintaining my rating. Since last week, there has been little price movement and no significant revision to earnings estimates or future guidance. I analyze and review the current ratios of each company I follow, and I am interested to see how ICO's current metrics stack up against ICO's historical averages . I will continue to monitor these ratios as well as any updated fundamental data that becomes available to better understand when an alert may be warranted.
Summary
The NYSE has achieved some pretty solid gains in the last twelve months. Interestingly, in regards to ICO, the Basic Materials sector has actual outperformed the NYSE over this intermediate time period. I believe my positive rating is still justified by my analysis of historical valuation metrics.
First, ICO decreased in price since 01/09/2010 and this does not greatly impact my outlook.
Second, recently, there have been no significant adjustments in earnings expectations or guidance.
ICO Revenue
When looking at ICO , I can see that average historical high and low Price to Sales per share ratios over the last 7 years are 2.45x and 0.98x respectively.
Utilizing this range I can see that ICO’s current Price to Sales per share ratio of 0.56x is significantly below its average levels historically. In fact, with a current price of $3.89, ICO is a full 70% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of my analysis, can be a strong positive for our outlook for ICO.
ICO Cash Earnings
It is important to understand that for ICO, the current level of Cash Earnings compared to its historical levels helps identify where ICO is in relation to what the investor was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 30.42 and a historical low Cash Earnings per share ratio of 10.34, an investor can relate where value becomes optimal.
At a difference of 67% below the average historical Price to Cash Earnings ratio, my 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 ICO. While I view that 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, I would become more neutral .
ICO Dividends
I believe dividends provide a useful measure of a company's inherent expectations. As for now ICO gets a neutral rating for the dividend portion of the model. As you can see, I am not receiving historical dividend information from our data provider on ICO at this time.
Evaluating Management
In evaluating management, I focus on three key measures, which combined,
produce Return on Equity (ROE). These measures are the investing of company
assets, the use of leverage, and the day to day operation of the business. Below
I summarize where each of these measures are currently compared to their
average levels over the last five years. This gives a good indication of the
strengths and weaknesses of each area.
Asset Turnover Ratio
The first portion of management's evaluation will examine whether management is efficiently investing company assets. For this study, I look at ICO's Asset Turnover Ratio (ATO) which is calculated by dividing sales by assets. At a current rate of 0.81x as of last reporting, this measure of management's investing ability is significantly above its 5 year average by 18%.
Leverage
The next stage in my evaluation of management is to look at their financing activities. By understanding their financing activities I can show whether management is being effective in their use of leverage. The best demonstration of this is the Assets to Equity Ratio. As of ICO's most recent reporting, Assets to Equity Ratio was 2.73x which is significantly above its 5 year average by 23%. Increasing leverage to this level is acceptable only if sales and earnings are growing relatively quickly as well.
Profit Margin
Lastly, I factor in profit margin trends into my analysis, for ICO profit margins are currently significantly below its 5 year average. Profit Margin (MGN) has long enjoyed popularity as a measure of management efficacy. It is computed by dividing earnings by sales, and as of ICO last reporting, Profit Margin was -2.25% significantly below its historical average. While a profit margin reduction of this magnitude may reflect management difficulties, it may also reflect a significant change in industry conditions not isolated to ICO.
Notes for Management
While each of these metrics provides part of the story, none of them by themselves gives the complete story. For that I use a combination of all three (i.e. ROE) as the best overall indicator of management effectiveness for ICO. It is common for firms to generate an after-tax ROE of somewhere between 10% and 20% with an average of 15% per year. In the case of ICO, at its last reporting, ROE was not positive, which raises strong concerns as to how management is operating.