On p/e ratios, PEGs, and -- cashflow ratios! (Yes, the free cashflow fiend is back.)
Let me add my two bits to the discussion of the discount at which TDW, GLM, and BHI are (or are not) trading.
First of all, to consider p/e ratios -- they of course vary depending on the source, so should be taken with a grain of salt, or looked at with leeway, as it were. But nowhere (pardon me, A. Kiri) did I see a p/e for GLM as high as 34: the highest I saw was 21.89 (MarketGuide).
Industry p.e.'s. MarketGuide gives the industry (drilling AND equipment)average p.e. as 36.9, which would mean all three companies are trading at a very large discount....EXCEPT that, for example, Tidewater is not really a drilling company (or an equipment company) at all; it's a boat company, like HMAR and TMAR. Of the three, only HMAR is classified under "water transportation." For that industry, the average p.e. is given as 23.19. (HMAR's is 24.5, TMAR's, 25.5.)
So go figure.
PEGs. Even the high guru of PEGs, the Motley Fool, says that PEGs should not be used with regard to certain industries, most especially the oil drilling industry. I must confess that I look at them anyway. Rather, I look at Telescan's company growth ratio, which is the same thing as the PEG ratio, but looked at in reverse: thus, the higher the number the better, rather than the other way around, as with PEG. Thus, Tidewater has a company growth ratio of 1.5 (.50 PEG), whereas HMAR has a much higher co. growth ratio of 2.2. GLM has a 1.2 co. growth ratio, and BHI has a co. growth of 1.0 (same as 1.0 PEG -- fully valued, no discount there).
CASHFLOW. I have seen it written many, many times that companies in the oil business should be valued on the basis of their cashflow, not on the basis of their p/e's. All three have good price/cashflow ratios, below industry (and S&P) averages: TDW, 14.5; GLM, 16.9; BHI, 15.7.
FREE CASHFLOW. The kicker here is FREE cashflow -- basically, the money left over from operating cashflow after the company has shelled out for (real, not accounting) capital expenditures. Since most oil drilling & equipment companies these days are investing fairly heavily in equipment, they often have little or no free cashflow, which leaves them vulnerable if the oil business doesn't do as well as everyone right now is expecting it to do. Here, only TDW (which I have bought) is "trading at a discount": its price/free cashflow ratio is a low, low 23.82,as compared both to the oil drilling & equipment industry's 58.21, and the water transportation industry's 35.77. GLM's price/free cashflow ratio is 1,941; and BHI doesn't have any ratio at all, because it has negative free cashflow. (P.S. - HMAR's is 352; TMAR is in the negative column.)
I am sure there are a zillion other ways to skin this cat, and I for one would like to hear about them. |
