Pason Systems Inc.

Sound bite for Twitter and StockTwits is: Dividend Growth Industrial. On a number of measures the stock price seems expensive. The only one that shows the stock as cheap is the dividend yield test. The company has had a hard time lately. It is probably cheap, but it would be risky. Also, the stock price is where it was in 2006. There is also insider selling. 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 thing I noticed when updating my spreadsheet is that the Chairman of the Board, James Douglas Hill seems to be the only insider with a significant number of shares and he is selling off his shares. When I first looked at this company in October 2013 Mr. Hill has just over 15M shares that were around 19 % of the outstanding shares. Today he has just over 10M which are around 12% of the outstanding shares. He sold shares in 2014, 2015 and 2016 and apparently is set to sell some 1.5M more shares.

James Douglas Hill is also a significant shareholder through J. D. Hill Investments Ltd. This investment does not appear to be changing. J. D. Hill Investments Ltd owns some almost 20M shares which is some 24% of the outstanding shares.

The other thing I noticed is that this company has very good debt ratios. The Liquidity Ratio for 2016 was 8.61 with a 5 year median of 4.08. The Debt Ratio for 2016 was 8.96 with a 5 year median of 6.59. What I like to see is ratios of 1.50 and above. This is way above 1.50. The Leverage and Debt/Equity Ratios are also good at 1.13 and 0.13 for 2016 and 5 year median ratios of 1.21 and 0.21. This company has no long term debt. Good debt ratios mean that a company can weather the bad times.

The last thing I noticed is that the company has just had two rather bad years with earning losses and declining revenue. They service the oil and gas industries which have a challenging time with quite low oil and gas prices. This company has suffered because of the lack of oil and gas drilling.

They have wisely stopped dividend increases. I know that dividend investors do not generally think like I do, but I prefer companies that pay in dividends what they can afford. When they are doing poorly then they could stop increasing dividends or in some cases cut or delete them. For this company no one seems to think that they will cut dividends, but no one sees any increases anytime soon.

Dividends are moderate and the dividend growth is good. The current dividend yield is 3.75% with 5, 10 and historical median dividend yields of 3.19%, 2.44% and 2.19%. The dividend growth for the past 5 and 10 years is at 14.2% and 21.1% per year.

They cannot current cover their dividends. They have had two years of earnings losses. They 5 year cover of dividends is 207% with negative Dividend Payout Ratios in 2015 and 2016. The company is expected to have positive earnings in 2017 and 2018 should this situation should change for the better. Also this company has cash equal to $1.73 per share or 8.8% of the current stock price.

The 5 year low, median and high median Price/Earnings per Share Ratios are 15.86, 21.00 and 26.15. The 10 year ratios are 14.60, 19.90 and 25.15. The Historical ones are 13.14, 18.80 and 23.64. The current P/E Ratio is 39.37 based on a stock price of $18.11 and 2017 EPS estimates of $0.46. This stock price testing suggests that the stock is relatively expensive. However, since earnings are depressed this may not be a good measure.

I get a Graham Price of $6.69. The 10 year low, median and high median Price/Graham Price ratios are 1.37, 2.09 and 2.52. The current P/GP Ratio is 2.71 based on a stock price of $18.11. This stock price testing suggests that the stock is relatively expensive. However, since earnings are depressed this may not be a good measure.

The 10 year median Price/Book Value per Share Ratio is 3.40. The current P/B Ratio is 4.19. The current P/B Ratio is based on Book Value of $365M, BVPS of $4.32 and a stock price of $18.11. The current P/B Ratio is some 23% higher than the 10 year median P/B Ratio. This stock price testing suggests that the stock is relatively expensive. However, the Book Value cannot grow when a company is not earning money. This also may not be a good measure.

The current dividend yield is 3.75%. It is based on dividends of $0.68 and a stock price of $18.11. The historical median dividend yield is 2.19% a value some 71% lower. This stock price testing suggests that the stock price is relatively cheap.

The 10 year median Price/Sales (Revenue) Ratio is 4.41. The current P/S Ratio is 6.20 a value some 41% higher. The current P/S Ratio is based on 2017 Revenue estimate of $247M, Revenue per Share of $2.92 and a stock price of $18.11. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations I find Buy, Hold and Underperform recommendations. The consensus recommendations would be a hold. The 12 month stock price consensus is $20.50. This implies a total return of 16.95% with 13.20% from capital gains and 3.75% from dividends.

An MTNV Staff Contributor on Digital News and Financial Analysis looks at this stock and it ratios seem poor. Kenneth Searles on Melville Review says that the Williams Percent Range says that the stock is neither overbought nor oversold. Matthew Smith on Simply Wall Streetthinks that the stock is overpriced based on his relative valuation model but he feels it has growth potential. See what analysts are saying on Stock Chase. One has shorted this stock and has gone long of Trican Well Services.

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.

The last stock I wrote about was about was North West Company (TSX-NWC, OTC-NWTUF)... learn more. The next stock I will write about will be Molson Coors Canada (TSX-TPX.B, NYSE-TAP)... learn more on Friday, November 3 around 5 pm. Tomorrow on my other blog I will write about Money Show 2017 - Keith Richards.... learn more on Thursday, November 2, 2017 around 5 pm.

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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