Enghouse Systems Ltd 2

I do not own this stock of Enghouse Systems Ltd (TSX-ESL, OTC-EGHSF). This stock has been recommended by Keystone Financial Publishing as a good Small Cap tech stock with dividend.

When I look at insider trading, I find $10.6M of insider selling and net selling at $10.5M. There is a small amount of insider buying. Most of the insider selling was by the CEO at $7.2M. The rest of the insider selling was by the directors. In 2013 financial year outstanding shares were increased by 262,000 due to stock options being exercise. The book value was $2.8M and this number of shares was worth $7.3M at the end of the year.

The 5 year low, median and high median Price/Earnings per Share Ratios are 13.00, 20.06 and 22.03. The current P/E Ratio is 29.33 based on 2014 earnings of $1.08 and a stock price of $31.68. This stock test says that the current stock price is high.

I get a Graham Price of $13.05. The 10 year low, median and high Price/Graham Price Ratios is 1.10, 1.33 and 1.64. The current P/GP Ratio is 2.43. This stock test says that the current stock price is high.

The 10 year median Price/Book Value per Share is 1.92 and the current P/B Ratio is 4.52. The current Ratio is some 1.35% higher than the 10 year median ratio and this stock price test says that the current stock price is high.

The 5 year median dividend yield is 1.87. The current dividend yield is 1.01% a value some 46% lower. This stock test also says that the current stock price is relatively high.

When I look at analysts' recommendations, I find Strong Buy and Buy recommendations. The consensus recommendation is a Buy. The 12 month consensus stock price is $34.60. This implies a total return of 10.23% with 1.01% from dividends and 9.22% from capital gains.

There is a positive mention of this stock at 5iResearch. On the site of IT Business, Candice So talks about how Enghouse is handling new acquisitions. Phillip Woolgar at Motley Fools talks about the fact that Enghouse always seems to have a lot of cash on hand. The Dividend Blogger talks about the fact that this stock is part of his True Canadian Dividend Achievers list.

To me I really like this company, but I think that the stock price is much too high to currently purchase it. Over paying for a stock is not good for your portfolio in the long term. It is not as if the analysts' 12 month stock price suggests that his stock will give an extraordinary return. It does not. See my spreadsheet at esl.htm.

This is the second of two parts. The first part was posted on Wednesday, January 22, 2014 and is available here.

Enghouse Systems Limited is a global provider of enterprise software solutions serving a variety of distinct vertical markets. Its strategy is to build a large diverse enterprise software company through strategic acquisitions and managed growth. Its web site is here Enghouse Systems.

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.