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5 Stocks Trading Near Their Historical Low P/S Ratios
Posted by: guruhl (IP Logged)
Date: April 11, 2012 05:39PM
According to GuruFocus’ list of Companies at Historical Low Price/Sales Ratios, these five companies are closest to their historical low P/S ratios: Apollo Group (APOL), Telefonica S.A. (TEF), Best Buy (BBY), Lifeway Foods (LWAY) and Mantech International-A (MANT). The P/S ratio is defined as a company’s share price divided by the revenue per share for the trailing 12 months. A stock trading at its historical low P/S ratio may indicate an opportunity.
Low-P/S stocks often appreciate. GuruFocus’ Historical Low P/S Portfolio returned 30% since January 2010, outperforming the S&P 500 by 7.2%.
The first stock near its 10-year-low P/S ratio is Apollo Group (APOL), with a P/S of 1, slightly below its 10-year-low P/S of 1.02. Apollo Group also has a P/B of 4.2 and P/E of 8.4, as well as a 5-Star Predictability ranking from GuruFocus.
Apollo experienced lower enrollment in 2011 due to the government raising the regulatory bar on how they recruit students, forcing them to change their recruitment practices. In the fourth quarter of 2011, the company’s revenue decreased 11%, primarily due to a 19% decline in enrollment, partially offset by selective price increases and a positive mix shift to higher degree levels. The company’s full-year 2011 enrollment was down 40.3% from 2010, and full-year revenue was $4.7 billion, a 4% decline from 2010.
Enrollment began to suffer when the U.S. Government Accountability Office issued on Aug. 4, 2010, a report called, “Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices.” The report uncovered some sketchy facts about the industry, saying, “Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO’s undercover applicants.”
On August 23, Apollo Group issued its own report entitled, “Higher Education at a Crossroads,” but has nonetheless had to change some of its practices. “For over 30 years, Apollo Group and University of Phoenix have been leading innovation in higher education," said Chas Edelstein, co-CEO of Apollo Group. "We are equally committed to leading the industry in transparency, standards and practices. We share many of the concerns recently raised by Congress, and we believe that thoughtful, consistent regulation is critical to the long-term success of higher education in America."
Later, the Higher Learning Committee which met to discuss the results of GAO’s report, found that, “based on its limited review... no apparent evidence of systematic representations to students or that the University of Phoenix's procedures in the areas of recruiting, financial aid and admissions are significantly inadequate.”
In fiscal year 2011, Apollo repurchased a total of 18.3 million shares, or 12% of its total shares outstanding at the beginning of the year, for $776 million. It does not pay a dividend.
Regarding outlook for 2012, the company expects new enrollment to grow in the first quarter of 2012 over the prior year, yet believes total enrollment and revenue growth rates will remain negative throughout 2012 due to increased number of students graduating in 2012.
Telefonica (TEF), the second company on the list, has a P/S ratio of 0.8, slightly above its 10-year-low P/S of .73. It currently trades for $15.40 per share, which is 2.3% above its 52-week low. It also has a P/B ratio of 1.9, an incredibly low P/E ratio of 3, and a GuruFocus predictability ranking of 4.5-Star.
Telefonica stock has declined 32% in the last year largely due to the challenges in its countries of operation. It is headquartered in the battered economy of Madrid, Spain. Telefonica’s 2011 revenue declined 1% year over year, and EBITDA declined 13.5% year over year. The company still generated $12.3 billion in free cash in 2011, increased from $10.7 billion in 2010.
Best Buy (BBY) has a P/S ratio of 0.2, slightly above its 10-year-low P/S ratio of 0.17 and at $21.88 per share trades just 2.6% above its 52-week low. It also has a P/B ratio of 1.3 and a P/E ratio of 6.
Best Buy’s stock has declined 28% in the last year, as concerns about the sustainability of its business model have grown. The company also released disappointing financial results in March. It reported a loss of $1.23 billion in the 12 months ended March 3, 2012, compared to net income of $1.3 billion the prior year. It also incurred a steep loss of $1.7 billion in the three months ended March 3, 2012, compared to net income of $651 billion in the same quarter 2011.
The company’s main problem was its big-box stores. Comparable store sales declined 1.7% in fiscal year 2012, while domestic online revenue grew 18%. To stanch its losses, the company decided to close 50 big box stores in the U.S. in 2013. Instead, it will open 100 Best Buy Mobile small format stores.
The sinking ship could be buoyed by new management. On April 10, Best Buy announced that its CEO, Brian Dunn, resigned.
The company close to its historical low P/S ratio, Lifeway Foods (LWAY), has a P/S ratio of 0.2, slightly above its 10-year-low P/S ratio of 1.88. The company also trades for $8.73 per share on Wednesday, which is 2.8% above its 52-week low.
Lifeway is the largest supplier of cultured dairy products called kefir and organic kefir in the U.S. Lifeway Foods’ stock declined 6.9% over the last year and 9% year to date due to a widened fourth-quarter loss. On April 2 it reported a loss of $400,000, compared to a loss of $200,000 the prior year. Revenue increased 16% to $18.7 million, and it expects sales to grow approximately 14% to $21 million in the first quarter of 2012.
The company’s balance sheet cash also dropped to $1.1 million in 2011, compared to $3.3 million in 2010. Nonetheless, the company plans to initiate an annual dividend of $0.07 per share. It also authorized a new share repurchase program for up to 200,000 shares, replacing its former 250,000-share repurchase authorization, under which is repurchased only about 130,000 shares.
Mantech International (MANT)’s P/S has decreased to 0.4, slightly above its 10-year-low P/S of 0.38. It also trades for $32 per share, which is 6.8% above its 52-week low, and has a P/B of 1.1 and P/E of 9.2. GuruFocus gives Mantech International the business predictability ranking of 5-Star.
In the last year, Mantech’s stock dipped 28%. However, the company has grown revenue for the last 10 years at a rate of 17.6% per year, and EBITDA at a rate of 18.2%. It also generated $167 million in free cash flow in 2011, increased from $161 million in 2010, and a 10-year record. The company also paid its first dividend – $0.84 per share – in 2011.
Recent skittishness by the markets is due likely to the company’s heavy reliance on government spending, which could contract in the future, and its reliance on acquisitions to fuel growth.
“We are confident that ManTech can continue to thrive even as federal spending slows because of our current positioning in cyber security, C4ISR, intelligence and other priority missions and access to more than 1,000 active contracts as well as our ability to target new growth markets with our strong balance sheet and proven history in identifying, executing and integrating acquisitions.,” ManTech chairman and CEO George J. Pedersen said in a statement.
Check out more stocks trading at their historical low P/S ratios here.
Stocks Discussed: APOL, TEF, BBY, LWAY, MANT,