Monday, June 18, 2012

Computer Modelling Group Ltd 2

Jeremy and Top Canadian Investing Blogs, see comments blog.

I own this stock of Computer Modelling Group Ltd. (TSX-CMG). I first bought this stock in 2008 and some more in 2009. In 2011 I sold half my stock when my stock had doubled in price. I have made a return of 40.9% per year on this stock. The dividend portion of this return is 6.3% per year and the capital gain is 34.6% per year. On my original investment, I am making a dividend of yield of 10.2%. Dividends have increased by 146% since I first bought this stock. The current dividend yield is 3.85% and with special dividend 4%.

When I look at insider trading there is $8.1M of insider selling and $8M of net insider selling. Insiders are generally not retaining their options. Sometimes with fast growing companies, options are just considered part of their pay. Also, insiders sometimes do not want all their money in the company they work for. (The situation of Enron showed this problem where insiders had their jobs, their pensions and their savings all tied up in the company and lost big time when it went bankrupt.)

Individuals in this company do own shares worth in the millions of dollars. However, they do not own a large part of the outstanding shares. I looked only at the larges insiders holdings and this came to 8.2% of outstanding shares.

For institutions, 31 of them own 54% of this company. Within the last 3 months they have increased their holdings by 9.8%. In fact this company’s stock price has just spiked up. I do not see the reason for this, for this is not the first time this has happened. The 12 months consensus stock price is $18.80. The most recent price increase almost takes it to this level.

The 5 year low, median and high Price/Earnings Ratio are 14.60, 17.47 and 21.88. The current P/E Ratio is 26.46. This is way above the median values, however, P/E ratios have been much higher over the last two years and this current P/E is about the median for the last two years. The last two years low P/E ratios are 22.79 and 28.42. For a fast growing tech stock 26.46 is not particularly high.

I get a Graham price of $4.38. The current stock price of $18.26 has a Price/Graham Price Ratio of 4.17. The 10 year low, median and high P/GP ratios are 1.14, 1.57 and 2.03. These ratios have been higher over the past two years also, with a median of 3.30 for these years. However, a P/GP ratio of 4.17 is the highest it has been.

I get a 5 year median dividend yield of 4.18%. The current dividend yield is 3.50% some 16% lower. If you include in the dividend the recent special dividend, the yield comes to 4.05% and only 3.08% lower the then the 5 year median. Using the dividend yield, the stock price would appear reasonable. I know that they are paying out a high Dividend Payout Ratio, but they have little debt and a very good cash flow.

When I look at the Price/Book Value Ratio, the story is different. The 10 year median P/B Ratio is 5.94, a rather high one. The current one is 14.78, which is 149% higher. The P/B Ratios have also been higher recently, but in the 12 to 13 range. Sometimes the P/B Ratio get very high on fast growing tech stocks.

The analysts’ recommendations I find are Strong Buy, Buy and Hold. The consensus recommendation would be a Buy, and this is the majority of the recommendations. In May a couple of analysts adjusted upward their target 12 months stock price.

Cash Dividend On The Way From Computer Modelling Group Limited is title of an article in Forbes.

Analysts think the dividend could be affected by a sustained downturn. (They are paying out a lot of their earnings, which is fine while earnings are high. However, there is definitely a risk of dividend decreases if earnings falter.) There is a problem with share liquidity or not a high volume of shares being traded daily. This could result in difficulty of selling if you panic and want out quickly.

I am happy with my investment in this company. I have already locked in a profit. However, since it is a tech stock, I do keep an eye on it. But, at the moment it is doing just great.

Would I buy this stock today? I think that this is a great stock to buy if it is at a reasonable or low price or if we were in a rising market. I do not think that the price is unreasonable, but it is not a low price. The other thing is the market. I do not think that the Euro saga is over just year. On the other hand, earning 4% while waiting for the market to move up is not particularly bad either.

Computer Modelling Group Ltd. is a computer software technology and consulting company serving the oil and gas industry. CMG is the leading supplier of advanced processes reservoir modelling software in the world with a blue chip client base of international oil companies and technology centers in approximately 50 countries. Its web site is here Computer Modelling. See my spreadsheet at cmg.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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