Thursday, June 01, 2017

Core Laboratories intrinsic value and price has dropped in the last 12 months

Core Labs has a low Book Value being a knowledge company. Comparing the price to earnings and/or cash flow might be better than the Graham Number which works well for companies with a lot of assets.  The chart above is the Peter Lynch chart for Core Labs (in US Dollars instead of Euros).  The blue line is 15x Earnings Per Share. The chart above is from last year. The chart below from today, the price has dropped 23 dollars.
SECTOR: [PASS]  Core Labs is a decades old oilfield services company. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Core Lab's sales of €627 million, based on 2015 sales, passes this test.

CURRENT RATIO:  [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Core Lab's current ratio €238m/€120m of 2 is ok.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Core Labs is €520 million, while the net current assets are €118 million. Core Labs passes this test.

LONG-TERM EPS GROWTH:  [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Core Lab's earnings have not increased much over the past ten years due to the fall in Earnings recently.

Earnings Yield: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Core Lab's E/P of 2% (using this years estimated Earnings) fails this test.

Graham Number value: [FAIL]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Core Labs has a Graham number of (15 x €2,3 EPS x 1,5 x €2,3 Book Value) = €16 

Dividend: €2/€100 = 2%   

Comments, questions or E-mails welcome:

No comments: