Shedding Some Light on Quant Signals & Ratios: Frontier Communications Corporation (NasdaqGS:FTR), Cohu, Inc. (NasdaqGS:COHU)

In order to determine if a company is fairly valued, we can look at a number of different ratios and metrics.  First off we’ll take a look at the Price to Cash Flow ratio of Frontier Communications Corporation (NasdaqGS:FTR).  The firm currently has a P/CF ratio of 0.318566.

This is the current Price divided by Cash Flow Per Share for the trailing twelve months. Cash Flow is defined as Income After Taxes minus Preferred Dividends and General Partner Distributions plus Depreciation, Depletion and Amortization.

Profitability

The Return on Invested Capital (aka ROIC) for Frontier Communications Corporation (NasdaqGS:FTR) is 0.054738.  The Return on Invested Capital is a ratio that determines whether a company is profitable or not.  It tells investors how well a company is turning their capital into profits.  The ROIC is calculated by dividing the net operating profit (or EBIT) by the employed capital.  The employed capital is calculated by subrating current liabilities from total assets.  Similarly, the Return on Invested Capital Quality ratio is a tool in evaluating the quality of a company’s ROIC over the course of five years.  The ROIC Quality of Frontier Communications Corporation (NasdaqGS:FTR) is 5.210672.  This is calculated by dividing the five year average ROIC by the Standard Deviation of the 5 year ROIC.  The ROIC 5 year average is calculated using the five year average EBIT, five year average (net working capital and net fixed assets).  The ROIC 5 year average of Frontier Communications Corporation (NasdaqGS:FTR) is 0.106063.

Frontier Communications Corporation (NasdaqGS:FTR) has a Price to Book ratio of 0.176472. This ratio is calculated by dividing the current share price by the book value per share. Investors may use Price to Book to display how the market portrays the value of a stock. Checking in on some other ratios, the company has a Price to Cash Flow ratio of 0.318566, and a current Price to Earnings ratio of -0.561355. The P/E ratio is one of the most common ratios used for figuring out whether a company is overvalued or undervalued.

After a recent scan, we can see that Frontier Communications Corporation (NasdaqGS:FTR) has a Shareholder Yield of 0.304493 and a Shareholder Yield (Mebane Faber) of 0.59269. The first value is calculated by adding the dividend yield to the percentage of repurchased shares. The second value adds in the net debt repaid yield to the calculation. Shareholder yield has the ability to show how much money the firm is giving back to shareholders via a few different avenues. Companies may issue new shares and buy back their own shares. This may occur at the same time. Investors may also use shareholder yield to gauge a baseline rate of return.

The EBITDA Yield is a great way to determine a company’s profitability.  This number is calculated by dividing a company’s earnings before interest, taxes, depreciation and amortization by the company’s enterprise value.  Enterprise Value is calculated by taking the market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents.  The EBITDA Yield for Frontier Communications Corporation (NasdaqGS:FTR) is 0.198402. 

There are many different tools to determine whether a company is profitable or not.  One of the most popular ratios is the “Return on Assets” (aka ROA).  This score indicates how profitable a company is relative to its total assets.  The Return on Assets for Frontier Communications Corporation (NasdaqGS:FTR) is -0.036908.  This number is calculated by dividing net income after tax by the company’s total assets.  A company that manages their assets well will have a higher return, while a company that manages their assets poorly will have a lower return.

Quant Scores

The Gross Margin Score is calculated by looking at the Gross Margin and the overall stability of the company over the course of 8 years.  The score is a number between one and one hundred (1 being best and 100 being the worst).  The Gross Margin Score of Frontier Communications Corporation (NasdaqGS:FTR) is 21.00000.  The more stable the company, the lower the score.  If a company is less stable over the course of time, they will have a higher score.

The C-Score is a system developed by James Montier that helps determine whether a company is involved in falsifying their financial statements.  The C-Score is calculated by a variety of items, including a growing difference in net income verse cash flow, increasing days outstanding, growing days sales of inventory, increasing assets to sales, declines in depreciation, and high total asset growth.  The C-Score of Frontier Communications Corporation (NasdaqGS:FTR) is 2.00000.  The score ranges on a scale of -1 to 6.  If the score is -1, then there is not enough information to determine the C-Score.  If the number is at zero (0) then there is no evidence of fraudulent book cooking, whereas a number of 6 indicates a high likelihood of fraudulent activity. The C-Score assists investors in assessing the likelihood of a company cheating in the books.

The ERP5 Rank is an investment tool that analysts use to discover undervalued companies.  The ERP5 looks at the Price to Book ratio, Earnings Yield, ROIC and 5 year average ROIC.  The ERP5 of Frontier Communications Corporation (NasdaqGS:FTR) is 2104.  The lower the ERP5 rank, the more undervalued a company is thought to be.

At the time of writing, Frontier Communications Corporation (NasdaqGS:FTR) has a Piotroski F-Score of 5. The F-Score may help discover companies with strengthening balance sheets. The score may also be used to spot the weak performers. Joseph Piotroski developed the F-Score which employs nine different variables based on the company financial statement. A single point is assigned to each test that a stock passes. Typically, a stock scoring an 8 or 9 would be seen as strong. On the other end, a stock with a score from 0-2 would be viewed as weak.

Checking in on some valuation rankings, Frontier Communications Corporation (NasdaqGS:FTR) has a Value Composite score of 10. Developed by James O’Shaughnessy, the VC score uses five valuation ratios. These ratios are price to earnings, price to cash flow, EBITDA to EV, price to book value, and price to sales. The VC is displayed as a number between 1 and 100. In general, a company with a score closer to 0 would be seen as undervalued, and a score closer to 100 would indicate an overvalued company. Adding a sixth ratio, shareholder yield, we can view the Value Composite 2 score which is currently sitting at 4.

The Price to Cash Flow for Cohu, Inc. (NasdaqGS:COHU) is 20.301262. The price to cash flow formula is a useful tool investors can use in order to determine the value of a company. Generally, a higher P/CF ratio indicates that the company is less capital demanding and the lesser price to cash flow indicates that the company is more capital demanding.

Formula: Price to Cash Flow = Current Stock Price/ Cash Flow per Share

This ratio is calculated by dividing the market value of a company by cash from operating activities. Additionally, the price to earnings ratio is another popular way for analysts and investors to determine a company’s profitability. The price to earnings ratio for Cohu, Inc. (NasdaqGS:COHU) is 21.440253. This ratio is found by taking the current share price and dividing by earnings per share.

Further, Price to Book ratio for Cohu, Inc. NasdaqGS:COHU is 2.156122. A lower price to book ratio indicates that the stock might be undervalued.

In taking a look at some additional key numbers, Cohu, Inc. (NasdaqGS:COHU) has a current ERP5 Rank of 5817. The ERP5 Rank may assist investors with spotting companies that are undervalued. This ranking uses four ratios. These ratios are Earnings Yield, ROIC, Price to Book, and 5 year average ROIC. When looking at the ERP5 ranking, it is generally considered the lower the value, the better.

The Gross Margin Score is calculated by looking at the Gross Margin and the overall stability of the company over the course of 8 years.  The score is a number between one and one hundred (1 being best and 100 being the worst).  The Gross Margin Score of Cohu, Inc. (NasdaqGS:COHU) is 21.00000.  The more stable the company, the lower the score.  If a company is less stable over the course of time, they will have a higher score.

Cohu, Inc. (NasdaqGS:COHU) currently has a Montier C-score of 4.00000. This indicator was developed by James Montier in an attempt to identify firms that were fixing the books in order to appear better on paper. The score ranges from zero to six where a 0 would indicate no evidence of book cooking, and a 6 would indicate a high likelihood. A C-score of -1 would indicate that there is not enough information available to calculate the score. Montier used six inputs in the calculation. These inputs included a growing difference between net income and cash flow from operations, increasing receivable days, growing day’s sales of inventory, increasing other current assets, decrease in depreciation relative to gross property plant and equipment, and high total asset growth.

Cohu, Inc. (NasdaqGS:COHU) has an M-score Beneish of -2.262118. This M-score model was developed by Messod Beneish in order to detect manipulation of financial statements. The score uses a combination of eight different variables. The specifics of the variables and formula can be found in the Beneish paper “The Detection of Earnings Manipulation”.

The Value Composite One (VC1) is a method that investors use to determine a company’s value.  The VC1 of Cohu, Inc. (NasdaqGS:COHU) is 37.  A company with a value of 0 is thought to be an undervalued company, while a company with a value of 100 is considered an overvalued company.  The VC1 is calculated using the price to book value, price to sales, EBITDA to EV, price to cash flow, and price to earnings.  Similarly, the Value Composite Two (VC2) is calculated with the same ratios, but adds the Shareholder Yield.  The Value Composite Two of Cohu, Inc. (NasdaqGS:COHU) is 47.

At the time of writing, Cohu, Inc. (NasdaqGS:COHU) has a Piotroski F-Score of 6. The F-Score may help discover companies with strengthening balance sheets. The score may also be used to spot the weak performers. Joseph Piotroski developed the F-Score which employs nine different variables based on the company financial statement. A single point is assigned to each test that a stock passes. Typically, a stock scoring an 8 or 9 would be seen as strong. On the other end, a stock with a score from 0-2 would be viewed as weak.

Valuation

Cohu, Inc. (NasdaqGS:COHU) presently has a current ratio of 3.62. The current ratio, also known as the working capital ratio, is a liquidity ratio that displays the proportion of current assets of a business relative to the current liabilities. The ratio is simply calculated by dividing current liabilities by current assets. The ratio may be used to provide an idea of the ability of a certain company to pay back its liabilities with assets. Typically, the higher the current ratio the better, as the company may be more capable of paying back its obligations.

The Earnings to Price yield of Cohu, Inc. NasdaqGS:COHU is 0.046641.  This is calculated by taking the earnings per share and dividing it by the last closing share price.  This is one of the most popular methods investors use to evaluate a company’s financial performance.  Earnings Yield is calculated by taking the operating income or earnings before interest and taxes (EBIT) and dividing it by the Enterprise Value of the company.  The Earnings Yield for Cohu, Inc. NasdaqGS:COHU is 0.080605.  Earnings Yield helps investors measure the return on investment for a given company.  Similarly, the Earnings Yield Five Year Average is the five year average operating income or EBIT divided by the current enterprise value.  The Earnings Yield Five Year average for Cohu, Inc. (NasdaqGS:COHU) is 0.001798.

Free Cash Flow Growth (FCF Growth) is the free cash flow of the current year minus the free cash flow from the previous year, divided by last year’s free cash flow.  The FCF Growth of Cohu, Inc. (NasdaqGS:COHU) is -0.359451.  Free cash flow (FCF) is the cash produced by the company minus capital expenditure.  This cash is what a company uses to meet its financial obligations, such as making payments on debt or to pay out dividends.  The Free Cash Flow Score (FCF Score) is a helpful tool in calculating the free cash flow growth with free cash flow stability – this gives investors the overall quality of the free cash flow.  The FCF Score of Cohu, Inc. (NasdaqGS:COHU) is 0.305584.  Experts say the higher the value, the better, as it means that the free cash flow is high, or the variability of free cash flow is low or both.

Volatility

Stock volatility is a percentage that indicates whether a stock is a desirable purchase. Investors look at the Volatility 12m to determine if a company has a low volatility percentage or not over the course of a year. The Volatility 12m of Cohu, Inc. (NasdaqGS:COHU) is 39.051000. This is calculated by taking weekly log normal returns and standard deviation of the share price over one year annualized. The lower the number, a company is thought to have low volatility. The Volatility 3m is a similar percentage determined by the daily log normal returns and standard deviation of the share price over 3 months. The Volatility 3m of Cohu, Inc. (NasdaqGS:COHU) is 33.714600. The Volatility 6m is the same, except measured over the course of six months. The Volatility 6m is 39.648600.

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