Wednesday, July 16, 2014

Computer Modelling Group Ltd. 2

On my other blog I am today writing about making big returns continue...

I own this stock of Computer Modelling Group Ltd. (TSX-CMG, OTC-CMDXF). I first bought this stock in July 2008. I was looking for something to buy. This company is a dividend paying growth stock that would also be considered to be a small cap with a capitalization of around $1.15 billion. Insiders are currently buying this stock. It has great growth and it is in information technology, a favourite sector of mine.

When I look at insider trading, I find some $5.7M of insider selling and some $5.6M of net insider selling. There is a small amount of insider buying. Net insider selling is one half of one percent of the market cap. That is a low amount.

Last year the outstanding shares where increased for stock options by 1.08M shares (or around 1.38%) with a book value of $14.4M. This number of shares was worth $15.7M at the end of March 2014. The prior year had the outstanding shares increased for stock options by 0.9M shares (or 1.2%) with a book value of $10M and this number of shares was worth $9.6M at the end of March 2013.

For insiders, the stock options are very good and much higher than most companies give out. Generally, outstanding shares are only increased less than one half of one percent for stock options. On the other hand shareholders have also made a lot of money on this stock.

There is insider ownership with the CEO having shares worth around $56.3M (and up from last year when he owned $11.9M). Also the CFO owns shares worth $1.3M, a director owns shares worth around $2.9M and the Chairman owns shares worth around $6.5M.

The 5 year low, median and high median Price/Earnings Ratios are 21.31, 22.78 and 27.91. These are a lot higher than the corresponding 10 year values of 12.60, 17.09 and 21.11. The current P/E Ratio is 35.71 based on a stock price of $14.64 and 2014 EPS of $0.41. By this stock price test, the current stock price is relatively expensive. (Although this is a tech and valuations for such stocks can get very high.)

I get a Graham Price of $2.73. The 10 year Price/Graham Price Ratios are 1.78, 2.33 and 2.89. The current P/GP Ratio is 5.37 based on a stock price of $14.64. By this stock price test, the current stock price is relatively expensive. (It is also quite expensive on an absolute basis.)

The 10 year Price/Book Value per Share Ratio is 7.20. The current P/B Ratio is 18.17 a value some 152% higher. I get a current BVPS of $0.81. A P/B Ratio of 18.17 is very high on an absolute basis. By this stock price test, the current stock price is relatively expensive.

I get a current dividend yield of 2.73%. The 5 year median dividend yield is 3.63% a value some 24% higher. The historical average dividend yield and historical median dividend yields are 4.93% and 3.52%, values some 45% and 24% higher than the current dividend yield. By this stock price tests, the current stock price is relatively expensive.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. The consensus recommendation would be a Buy. The 12 month stock price consensus is $16.00. This implies a total return of 12.02% with 2.73% from dividends and 9.29% from capital gains. This is not much a return from capital gains for a buy on a stock that already has high valuations. (A few analysts are concerned about the company's current high valuations.)

There is a good review of this stock on a blog calledInternational Growth Stocks. The Times Colonist talks about the company increasing its dividends and doing a 2 for 1 stock split.

Sound bit for Twitter and StockTwits is: Company is overbought. I still think that this is a great company and that I will earn good money from it still, but the current valuations are too high. See my spreadsheet at hse.htm.

This is the second of two parts. The first part was posted on Tuesday, July 15, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

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 Group.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.


  1. I know that you are dividend focused. Here is an article that I found interesting, I agree with his reasoning. Maybe it will stimulate some discussion

  2. Susan,

    Thanks for your wonderful analyses in "Investment Talk"!

    I just read your articles on Computer Modelling Group (CMG). This stock has also been very good to me. I believe the market cap you're showing for this one is one digit out. It's actually 1.1 billion not the 115 million you report.

    Bernie Klunder

  3. Bernie: Yes, you are right the market cap is 1.1 Billion and I will correct my blog entry.