Pason Systems Inc 2

I do not own this stock Pason Systems Inc. (TSX-PSI, OTC-PSYTF). I read a report on this stock in the Buy and Sell Advisor in September 2013. I had not heard of this dividend growth company before. The article said that they did not advise buying at the present as the stock price was currently too high. However, stock prices will not always be too high, even on great stocks.

The insider trading information is that there was 2.4M of insider selling and $2.2M net insider selling with some $0.2M of insider buying over the past year. Generally speaking insiders have more options than shares. For example, the CEO has $0.3M of shares and $4.7M of options. However, there are exceptions. One director has $351M of shares and Royce & Associates have $232M of shares.

The 5 year low, median and high median Price/Earnings per Share Ratios are 13.33, 18.80 and 24.27. The current P/E Ratio is 17.82 based on 2013 earnings estimate of $1.24 and a stock price of $22.10. The current Graham price is $10.57 and the 10 year low, median and high median Price/Graham Price Ratios are 1.55, 2.03 and 2.42. The current P/GP Ratio is 2.02 based on a stock price of $22.10.

The 10 year median Price/Book Value per Share Ratio is 3.76 and the current and the current P/B Ratio is 5.15 a value some 37% higher. The 5 year median Dividend Yield is 2.33% and the current Dividend yield is 2.35%.

The stock price tests dealing with P/E, P/GP and Dividend yield say that the current stock price is relatively at a median price, so the stock price is reasonable. The P/BV Ratio test says that the stock price is relatively high. Also note that the P/E and the P/GP are high on an absolute basis.

If you look at dividend yield on an historical basis, the stock price is relatively low. However, there is good reason to discount this test because the company has been increasing the yield by increasing the Dividend Payout Ratios for both earnings and cash flow.

The one stock test left that is not using estimates is the P/BV Ratio test and this says the stock price is relatively high. If you look at the current Price/Sales Ratio and the Price/Cash Flow per Share Ratio, they are both above the median. The current P/S Ratio is higher than the 5 year median P/S Ratio by some 18% and the current P/CF Ratio is higher than the 5 year median P/CF Ratio by 28%. The stock is not cheap, seems higher than the median on a number of ratios. None of the ratios are low on an absolute basis.

When I look at analysts' recommendations, I find Buy and Hold recommendations. The majority of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 month stock price is $21.30. This implies a total loss over the next year of 1.27% with a capital loss of 3.62% and dividends of 2.35%.

The Penny Stock Journal did a review of this stock in June of this year. Here is an Financial Post report on fights over fracking patents.

I still think that this is a good company, but I believe that the stock price is currently too high. See my spreadsheet at psi.htm.

This is the second of two parts. The first part was posted on Wednesday, October 16, 2013 and is available here.

Pason is the leading global provider of specialized data management systems for drilling rigs. Their solutions, which include data acquisition, well-site reporting, remote communications, and web-based information management, enable collaboration between the rig and the office. Its web site is here Pason.

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 or StockTwits.