Computer Modelling Group Ltd

Sound bite for Twitter and StockTwits is: Price is probably reasonable. On some absolute basis, the stock price is high, but this is a tech company and ratios tend to be higher on tech companies. I still expect a good run from this stock and will hold onto the shares that I currently have. See my spreadsheet on Computer Modelling Group Ltd.

I own this stock of Computer Modelling Group Ltd. (TSX-CMG, OTC- CMDXF). Since selling SNC 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 $115 million (2007). Insiders were buying this stock. It has great growth and it is information technology a favourite sector of mine. When I sold some of my TD Bank stock in June 2009, I bought some more.

This company, has grown since I bought it and it now has a market cap of close to $800M. The market cap was over $1B last year. Insiders are no longer buying. In the last 3 years Net Insider Selling was at 0.57%, 0.16 and 0.78%. So there is relatively a lot of insider selling and selling is probably of stock options.

Over the last 2 years the company has been buying back shares. However, shareholders have not benefited from this because the company issued more shares for stock options than shares that had been brought back. I saw a recent note on this subject by Philip van Doorn on Market Watch in which he points out that shareholders only gain when the Fully Diluted Shares decrease.

For this company there were small changes in Diluted Shares. In 2015 the shares went up by 0.45% and in 2016 they went down by 0.45%. Also, the percentage decrease due to Buy Backs was only 1.03% and 0.75% in 2015 and 2016. It seems like the Buy Backs are to cover Stock Options.

This company is both a tech company and is in the oil and gas sector as it services the oil and gas sector. However, I have done well. My total return is at 28.81% per year with 21.81% from capital gains and 7% from dividends. I have had this company for 7.9 years and the dividends have covered 89% of the price of my stock.

This company used to have great dividend growth. Even through the dividends remained flat in 2015, the dividend growth over the past 5 and 10 years is at 15.8% and 32% per year. The last dividend rise really occurred at beginning 2014 and it was for 5.3%. This is because the financial year-end at the end of March each year for this company.

I would image that this company stopped raising the dividends because they could not cover them with earnings. For the financial year ending in March 2016, they paid out 125% of earnings in dividends. Analysts do not expect this company to be able to cover their dividends with earnings until the financial year ending in March 2018.

This company is, after all servicing the oil and gas industry and so it is not surprising that they are experiencing some difficulties. The high dividend yield, currently around 4% and with a 5 year median of 3.4%, it is not surprising that dividends cover stock's purchase price generally before 10 years are up.

They have had modest growth in shares over the past 5 and 10 years mostly due to stock options. Growth was at 1.6% and 2% per year over the past 5 and 10 years. They have also been doing some Buy Backs (as mentioned above) which partially cover stock options. Growth is mostly good, with some moderate growth. Because of the growth in shares, it is the per share growth that is important.

For example, the growth in Revenue is 9.3% and 16.7% per year over the past 5 and 10 years. Growth in Revenue per Share is at 7.6% and 14.4% per year over the past 5 and 10 years. Growth in Cash Flow excluding Working Cap is at 14.6% and 24.1% over the past 5 and 10 years. CFPS excluding WC is at 12.8% and 21.7% per year over the past 5 and 10 years.

The Return on Equity has been very high. The ROE for 2016 is at 42.7% and it has a 5 year median of 48.3%. It has not been lower than 10% for some time.

The 5 year low, median and high median Price/Earnings per Share Ratios are 23.47, 29.41 and 37.95. The corresponding 10 years values are lower at 17.29, 22.52 and 27.39. The historical values are 8.95, 12.83 and 16.73. It is obvious that most of the run up in stock value is due to increasing P/E Ratios. This can be a problem if the P/E Ratios get too high.

The current P/E Ratio is 25.67 based on a stock price of $10.10 and 2017 ESP estimate of $0.39. This is reasonable and below the median if you use 5 year values and reasonable and above the median if you use 10 year values. The current ratio is probably not unreasonable considering this is a tech company which tends to have higher values.

I get a Graham Price of $2.57. The 10 year low, median and high median Price/Graham Price Ratios are 2.27, 3.31 and 4.03. The current P/GP Ratio is 3.90 based on a stock price of 10.10. This stock price testing suggests that the stock is relatively reasonable and below the median. However, it must be noted that the P/GP Ratio of 3.90 is a rather high ratio.

The 10 year median Price/Book Value per Share Ratio is 10.98. The current P/B Ratio is 13.31 based on BVPS of $0.75 and a stock price of $10.10. The current P/B Ratio is some 21% higher than the 10 year ratio. This stock price testing suggests that the stock price is expensive. Note that what is considered a good P/B Ratio is 1.50, so the ratios on this stock are high.

The current dividend yield is 4% based on a stock price of $10.10 and dividends of $0.40. The historical dividend yield is 3.47% a value some 15% lower. This stock price testing suggests that the stock price is reasonable and below the median.

The analysts' recommendations are all over the place. There are Buy, Hold, Underperform and Sell recommendations. Most of the recommendations are a Buy. The consensus recommendation is a Hold. The 12 month stock prices consensus is $9.76. This is below the current stock price. This implies a total return of $1.5% with 4% from dividends and a capital loss of 2.5%. It would seem that most analysts do not see much progress from this stock in the near term.

An article in The Post talks about recent analysts' reports on this company. Nick Waddell talks about this stock on Can Tech . Joseph Solitro of Motley Fool likes this stock. Kevin Wiens on Seeking Alpha likes this company.

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 that report here and here.

The last stock I wrote about was about CI Financial Corp (TSX-CIX, OTC- CIFAF)... learn more . Tomorrow on my other blog I will write about Killing Others You do not Like... learn more on Tuesday, June 21, 2016 around 5 pm. The next stock I will write about is Parkland Fuel Corp. (TSX-PKI, OTC-PKIUF)... learn more on Wednesday, June 22, 2016 around 5 pm.

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 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. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.