Pason Systems Inc. 2

On my other blog I am today writing about Money Show 2015 and Peter Hodson learn more...

Sound bite for Twitter and StockTwits is: Stock is cheap to reasonable, but risky. A strong balance sheet shows a company that can survive in the bad times. It is bad times for the oil and gas industry that this company services. With the problem of low oil and gas prices comes risk. See my spreadsheet on Pason Systems Inc.

I do not own this stock of 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 so I decided to investigate it.

The 5 year low, median and high median Price/Earnings per Share Ratios are 23.89, 28.59 and 33.30. The corresponding 10 year P/E Ratios are 16.11, 20.46 and 25.16. The 10 year value seem more reasonable to me. The historical median P/E Ratio is 19.64. The current P/E Ratio is 240.50. This is based on a stock price of $19.24 and 2015 EPS estimate of $0.08.

If you base current P/E Ratio on last 12 month earnings you get a P/E Ratio of 20.69. However, I like using the estimates because the stock market is really based on what people think will happen. The conclusion I come to is that you really cannot use P/E Ratios to price this stock at the present time. There is also a problem with using the Graham Price as this equation uses EPS.

One test I do like is the Price/Book Value per Share Ratio test. The 10 year P/B Ratio is 3.87 and the current P/B Ratio is 3.20 a value some 17% lower. The current P/B Ratio is based on BVPS of $6.02 and a stock price of $19.24.

The 5 year median dividend yield is 2.50%. The current dividend yield is 3.53% based on a stock price of $19.24 and dividends of $0.68. The current dividend yield is some 41.6% higher than the 5 year median dividend yield. The historical dividend yield is 2.17% and the current dividend yield is some 63% higher. This all suggests that the current stock price is reasonable and way below the relative median price.

The historical high dividend yield is 3.81%. The current dividend yield at 3.53% is just 7% off this yield. This also suggests a stock that is getting cheap.

This is about all the testing I can do. Both revenue and cash flow is dropping for 2015, so it would appear that 2015 will not be a good year for this company. Analysts expect some improvement in 2016. The problem is, of course, this company services the oil and gas industry.

When I look at analysts' recommendations, I find Buy, Hold and Underperform recommendations. Most of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 month stock price consensus is $21.00. This implies a total return of 12.68% with 3.535 from dividends and 9.15% from capital gains.

The article by Brenda Bouw in the Globe and Mail talks about this companies good dividend and strong balance sheet. It also discusses the problem they have because of the drop in the oil and gas industry. This article on Octa Finance talks about some target price drop by Altacorp Capital. This article in the Calgary Herald talks about job cuts at Pason Systems.

This is the second of two parts. The first part was posted on Wednesday, November 4, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

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 Systems Inc.

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.

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