Wednesday, January 27, 2016

Enghouse Systems Ltd.

Sound bite for Twitter and StockTwits is: expensive, losing momentum. Since hitting a peak in early January of this year, this stock has been going south. Great stock, but it seems to currently have gotten a little too high. It has also lost its upwards momentum. See my spreadsheet on Enghouse Systems Ltd.

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.

This company started dividends in 2008, some 8 years ago. Dividends yields are quite low, but the dividend growth is good. The current dividend is 0.80% based on dividends of $0.48 and a stock price of $60.55. The 5 year median dividend yield is 1.36% and the historical median dividend yield is 1.71%. Dividends have grown at 25.7% and 23.6% over the past 5 and 7 years.

The Dividend Payout Ratios are quite moderate. The DPR for EPS for 2015 was 37.6% and it 5 year median is 31.5%. The DPR for CFPS for 2015 was 20.11% with a 5 year median of 17.7%.

Because the current dividend is so low at just 0.8%, in 5 years' time if dividends continue to grow at 23.6%, then the yield on a purchase today would be just 1.22%. In 10 years' time, if dividends continue to grow at 23.6%, then the yield on a purchase today would be 6.70%.

However, if you purchase this stock when the dividend is at its historical median of 1.71%, then the dividend yield on a purchase today would be 2.61% in 5 years' time or 14.23% in 10 years. Starting dividend yield can really make a difference in what yield you earn in the future on your original purchase price.

The growth in revenue, earnings and cash flow has been very good on this stock. For example, Revenues have grown at 24.3% and 19.2% per year over the past 5 and 10 years. Revenue per Share has grown at 22.9% and 18.7% per year over the past 5 and 10 years.

My 5 year low, median and high Price/Earnings per Share Ratios are 15.70, 23.12 and 30.54. The 10 year corresponding ratios are similar at 17.65, 22.80 and 29.53. I get a current P/E Ratio of 36.70 based on a stock price of $60.55 and 2016 EPS estimate of $1.65. This stock price testing suggests that the stock price is relatively expensive.

I get a Graham Price of $18.43. The 10 year low, median and high Price/Graham Price Ratios are 1.12, 1.65 and 1.34. The current P/GP Ratio is 3.28. You expect for a fast growing tech stock that the P/GP Ratio would be high, but a ratio of 3.28 is a little too high. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I see Buy and Hold recommendations. There is only 2 analysts following this stock and the consensus would therefore be a Buy. The 12 month stock price is $75.00. This implies a total return of 24.66% with 23.86% from capital gains and 0.79% from dividends. This stock hit just over $75.00 in January, but has been south since then. Stocks tend to be overbought or oversold.

Insider selling over the past year is high at 1.39% of market cap. For the stocks I track the median Net Insider selling is 0.02% and 75% of the stock has NIS at a 0.11% or less. The company gives out a lot of stock options, for 2015 stock options were at 1.59% of the outstanding shares. Most of the insider selling has happened since September of 2015 and there was a cluster of selling between $70 and $75.

Technical Analysis on 4 Traders give Bearish in the Short Term and Bullish in the Long Term. This makes sense. The Catalyst Tree on Seeking Alpha gives a glowing report on this stock.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see the reports here and 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 Ltd.

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.

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