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SEI Investments Co. Message Board

  • ntack5 ntack5 Aug 12, 2005 6:55 AM Flag

    Why is the P/S so high?

    This company has a huge Price to Sales ratio. Any reason why it deserves it? I don't think that they generate enough cash to increase dividends going forward.

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    • the busuness is alrgely fee based as a % of client assets. Revenur growth is directly impacted by ckients asset levels which rise and fall with the broader market. SRI is susceptible as are other asset managers to market fluctuations.

    • P/s high because profit margins are very high.

      Investors are willing to pay a high price for each dollar of the company's sales because each sales dollar is so very,very profitable.

      Contrast that with a grocery business for example, where the p/sales ratio is low and the business has a low profit margin.

      Both types of businesses can be good. Both could have good returns on equity, good p/earnings. Extremely different businesses though. One (SEIC) makes about 24 cents on each dollar of sales, the other makes a penny or two on each sales dollar (but may have more sales/share).

    • In general Price to Sales isn't a very useful ratio for financial stocks. Look at the ROA and ROE ratios, over 15% and over 20% respecively.

      The last recored figures from Value Line that I have for SEI estimate cash flow of $1.95 per share in 2005 and $2.15 in 2006.

      The company appears to me to have the free cash to cover debt and then buy back stock, raise the dividend, or some combination of the two. But then perhaps there is a small niche competitor or other acquisition that will be coming our way.

      Based on past experience I expect stock buy backs and semi-regular dividend increases over the next few years.

      -- Mark --

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