EMC Corp. (NYSE:EMC)

The valuation multiples for the period between 2011 and 2015 exhibit a divergent trend between earnings-based metrics and revenue-based metrics. While profitability multiples recovered and expanded after an initial decline, the revenue multiple followed a general downward trajectory.

Price to Earnings (P/E) and Price to Operating Profit (P/OP)

Both ratios demonstrate a high degree of correlation over the five-year period. A notable contraction occurred in 2012, with the P/E falling to 17.93 and the P/OP dropping to 12.36. Subsequently, both metrics entered a sustained growth phase, with the P/E ratio expanding to 25.37 and the P/OP ratio increasing to 17.77 by the end of 2015, suggesting an increase in the market premium attributed to profitability.

Price to Sales (P/S)

The P/S ratio exhibited a consistent overall decline. Starting at 2.82 in 2011, the ratio decreased to 2.04 by 2015. This trend indicates that the market valuation relative to total revenue generation weakened over the analyzed period, contrasting with the expansion observed in the earnings-based multiples.

Price to Book Value (P/BV)

The P/BV ratio fluctuated moderately, indicating variability in the market's assessment of the company's net asset value. A decrease to 2.19 was recorded in 2012, followed by a gradual recovery to a peak of 2.63 in 2014, before settling at 2.39 by the end of 2015.

An analysis of the valuation ratios from 2011 to 2015 reveals a fluctuating relationship between share price and earnings per share, resulting in a volatile price-to-earnings (P/E) multiple. While earnings demonstrated an initial growth trend, the valuation multiple experienced a significant contraction followed by a consistent expansion toward the end of the period.

Share Price and Earnings per Share (EPS) Trends

Share prices exhibited volatility throughout the five-year period, declining to a low of 23.28 US$ in 2012 before peaking at 28.94 US$ in 2014 and subsequently retreating to 25.93 US$ in 2015. Earnings per share showed a steady upward trajectory from 2011 to 2013, increasing from 1.20 US$ to 1.43 US$. This growth trend reversed after 2013, with EPS falling to 1.37 US$ in 2014 and experiencing a sharp decline to 1.02 US$ by the end of 2015.

Price-to-Earnings (P/E) Ratio Analysis

The P/E ratio underwent a sharp contraction between 2011 and 2012, dropping from 22.96 to 17.93. This decline occurred despite an increase in EPS, suggesting a decrease in investor willingness to pay a premium for earnings during that interval. Following a period of stability in 2013, the ratio expanded consistently, reaching 21.20 in 2014 and 25.37 in 2015. The expansion in 2015 is particularly significant; the P/E ratio reached its period high despite a simultaneous decline in both share price and earnings, indicating that the reduction in earnings per share was more pronounced than the decline in the market price.

The financial performance and market valuation between 2011 and 2015 exhibit a divergent relationship between operational profitability and the price-to-operating profit (P/OP) multiple.

Share Price Trends

The share price experienced volatility throughout the analyzed period. After starting at 27.52 US$ in 2011, the price declined to a period low of 23.28 US$ in 2012. A recovery followed, with the price peaking at 28.94 US$ in 2014 before decreasing to 25.93 US$ by the end of 2015.

Operating Profit per Share

A growth trend in operating profit per share was observed from 2011 to 2013, increasing from 1.68 US$ to 2.05 US$. This figure remained nearly flat in 2014 at 2.03 US$, followed by a significant contraction in 2015, where it fell to 1.46 US$, the lowest value in the five-year sequence.

Price to Operating Profit (P/OP) Ratio

The P/OP ratio followed a non-linear trajectory. There was a sharp contraction between 2011 and 2012, where the ratio dropped from 16.41 to 12.36. Subsequently, a consistent upward trend emerged, with the ratio climbing to 12.53 in 2013, 14.25 in 2014, and reaching a period peak of 17.77 in 2015.

Valuation Correlation

An inverse relationship between the P/OP ratio and operating profit per share is evident in the final year of the period. While operating profit per share saw its most substantial decline in 2015, the P/OP ratio reached its highest point. This indicates that the market valuation expanded relative to the actual operating earnings generated, resulting in a more expensive valuation multiple despite diminishing operational profitability.

Between 2011 and 2015, a divergence is observed between the steady growth of revenue efficiency and the market's valuation of those sales. While sales per share increased consistently throughout the period, the price-to-sales multiple experienced an overall contraction, indicating a decrease in the premium the market was willing to pay for each dollar of revenue generated.

Sales per Share Trend

A consistent upward trajectory is evident in the sales per share, which grew from 9.75 US$ in 2011 to 12.69 US$ in 2015. This represents a continuous annual increase, suggesting an improvement in top-line productivity on a per-share basis over the five-year window.

Share Price Volatility

The share price exhibited significant fluctuations, starting at 27.52 US$ in 2011, dropping to 23.28 US$ in 2012, and peaking at 28.94 US$ in 2014 before receding to 25.93 US$ by the end of 2015. This volatility contrasts with the linear growth observed in the sales per share.

Price to Sales (P/S) Ratio Analysis

The P/S ratio declined from 2.82 in 2011 to 2.04 in 2015. After a sharp initial drop between 2011 and 2012, the ratio remained relatively stable between 2.24 and 2.35 from 2012 through 2014. The final decline to 2.04 in 2015, occurring despite the highest recorded sales per share, suggests a compression in valuation multiples.

The overall analysis reveals that the increase in sales per share was insufficient to maintain the higher P/S multiples seen at the start of the period. The contraction of the P/S ratio from 2.82 to 2.04 indicates that the market valuation of the company's revenue stream weakened over time, despite the underlying growth in sales.

The analysis of valuation multiples between 2011 and 2015 reveals a period of volatility in market pricing contrasted with a relatively stable growth trajectory in the company's book value.

Book Value per Share (BVPS) Trends

A consistent upward trend in book value per share is observed from 2011 (US$ 9.23) through 2013 (US$ 11.01), indicating a strengthening of the net asset base per share. This growth plateaued in 2014 at US$ 11.01, followed by a marginal contraction to US$ 10.86 by the end of 2015.

Share Price Fluctuations

The market price of the common stock exhibited significant variability. After an initial decline from US$ 27.52 in 2011 to US$ 23.28 in 2012, the price entered a recovery phase, peaking at US$ 28.94 in 2014 before declining to US$ 25.93 in 2015.

Price to Book Value (P/BV) Ratio Interpretation

The P/BV ratio experienced its highest valuation in 2011 at 2.98. A sharp compression occurred in 2012, with the ratio dropping to 2.19; this was the result of a simultaneous decrease in share price and an increase in book value. A moderate expansion of the multiple followed, reaching 2.63 in 2014, before receding to 2.39 in 2015. The overall movement suggests that while the market consistently valued the company above its book value, the premium applied to the net assets fluctuated in response to market conditions and share price volatility.