Good value in homeland security stocks

Published 12 May 2010

To find companies that may be bargains, we should look at the price-to-sales ratio (PSR), or the stock price divided by sales per share; this is a useful way of looking at a company’s value compared to its ability to generate revenue: a PSR of 0.9 means that one dollar of a company’s revenue can be bought for 90 cents; using PSR, some homeland security companies looking cheap relative to sales

Homeland security is back front and center again after the Times Square bomb attempt on 1 May. Forbes looked for companies with at least part of their business in the homeland security field that might offer investors value.

Forbes’s Andrea D. Murphy writes that in order to find companies that may be bargains, the business magazine looked at the price-to-sales ratio (PSR), or the stock price divided by sales per share. This is a useful way of looking at a company’s value compared its ability to generate revenue. A PSR of 0.9 means that one dollar of a company’s revenue can be bought for 90 cents.

Murphy and her colleagues then screened for companies involved with homeland security with a PSR of less than 1.0. In addition, since PSRs vary by industry, the PSRs of these stocks are both below the average multiple for their industries and off their 5-year averages.

The eight companies listed below offer services and products that range from airport screening systems used by the Transportation Security Administration (TSA) in airports and computer software to biohazard testing that can detect anthrax in mail. For example, CACI provides computer software and services to a variety of DHS agencies such as the U.S. Coast Guard, Customs and Boarder Protection (CBP), the Federal Emergency Management Agency (FEMA), and Immigration and Customs Enforcement (ICE):

    CACI

    • Price: $48.02
    • Current Price-To-Sales Ratio: 0.47
    • Price-To-Sales Five-Year Average: 0.77
    • Market Value: $1,856m
    • Industry: Software & Programming

    DynCorp

    • Price: $16.78
    • Current Price-To-Sales Ratio: 0.28
    • Price-To-Sales Five-Year Average: 0.41
    • Market Value: $946m
    • Industry: Misc. Transportation

    ITT

    • Price: $52.41
    • Current Price-To-Sales Ratio: 0.84
    • Price-To-Sales Five-Year Average: 1.11
    • Market Value: $9,168m
    • Industry: Aerospace & Defense

    L-3 Communications

    • Price: $89.26
    • Current Price-To-Sales Ratio: 0.64
    • Price-To-Sales Five-Year Average: 0.79
    • Market Value: $10,007m
    • Industry: Aerospace & Defense

    Labarge

      Price: $12.36
    • Current Price-To-Sales Ratio: 0.70
    • Price-To-Sales Five-Year Average: 0.93
    • Market Value: $188m
    • Industry: Aerospace & Defense

    Northrop Grumman

    • Price: $64.88
    • Current Price-To-Sales Ratio: 0.56
    • Price-To-Sales Five-Year Average: 0.68
    • Market Value: $18, 903
    • Industry: Aerospace & Defense

    Raytheon

    • Price: $56.59
    • Current Price-To-Sales Ratio: 0.84
    • Price-To-Sales Five-Year Average: 1.03
    • Market Value: $20,854
    • Industry: Aerospace & Defense

    Siemens

    • Price: $94.25
    • Current Price-To-Sales Ratio: 0.81
    • Price-To-Sales Five-Year Average: 1.31
    • Market Value: $75,163
    • Industry: Electronic Instruments & Controls