Will you slash or stash Potash Corp./Saskatchewan (NYSE:POT)?
Potash Corp./Saskatchewan (NYSE:POT) stock has been in a tizzy lately with the recent plunge in potash prices. The joint-venture that broke up in the former Soviet Union just fueled the drop. Decreasing crop prices have weakened the demand. Despite its straight drop, POT stock will continue underperforming. Let’s take a look at why this is the case.
A matter of ratios
In 2012 spring, Pot has a 4.4 price-to-sales ratio. At that point of time, this was double the median-peer group’s 2.2 average and above the groups 2.8 mean average. With the standard deviation of just 2%, the group is largely priced on a price-to-sales ratio and not on the PE ratio which is used more commonly.
Currently, the price-to-sales ratio remains the most relevant relative-valuation metric. Taking a standard deviation of 1.5% into consideration, these days the group trades closer on its price-to-sales ratio.
For those who are wondering how this occurred, Potash Corp has always had a history of sizeable stock-splits. Since 2004 August the company has actioned 1, 2-for-1 and 2, 3-for-1 stock-splits.
Too much waiting
The price-to-sales ratio is calculated as the ratio of the current stock-price and the sales/share. The sales/share can be calculated as a ratio of the net sales with the shares outstanding. At $9.26/share POT sales are less than 50% of Mosaic, its close competitor which is at $23.42/share. In the event of an industry upswing, Potash Corp./Saskatchewan (NYSE:POT) stock is bound to move higher.
However, as long as the company continues trading with a built-in takeover premium, it will not perform as well as its peers or immediate rivals. And so when the question of slash or stash comes in, stash the stock for now, it will buck up in the future. Potash Corp./Saskatchewan (NYSE:POT) is a company that deals in integrated fertilizers and related feed and industrial products.