I do not own this stock of Absolute Software Corporation (TSX-ABT, OTC-ALSWF). The Motley Fool published an article by Matt DiLallo in December 2014 called The 10 Best Stocks in Canada. It is basically a list of the best-performing Canadian stocks of the past decade.
When I was updating my spreadsheet, I noticed that their book value is still negative, but this is because of deferred revenue. They cannot afford their dividends if you look at their Dividend Payout Ratio for EPS. The DPR for CFPS is also a bit high. However, they do have a lot of cash. The financial year ends in June each year, so the last annual financial statements are dated June 30, 2018. They report in US$.
Even though they report in US$, they are paying dividends in CDN$. They started to pay dividends in 2013 and at first, they were increasing their dividends. The increases stopped last year when they were flat. The increases were at rate of 9.86% per year in CDN$ over the past 5 years.
The dividends are current moderate with a yield at 3.64%. The 5 year median yield is also moderate at 3.92%. The dividend growth is moderate at 9.86% per year.
Can they afford their dividends? is an interesting question. If you look at it from an earnings point of view, they paid out 320% of their earnings over the past 5 years. If you look at cash flow, they paid out 63% of their cash flow where it is generally it is best to pay out 40% for less of CFPS. However, they do have lots of cash on hand. However, with them making the dividend flat suggests that management feels that they have to moderate their dividend policy. The revenue is not growing much these days.
The Debt Ratios look awful, but things are not as bad as they seem. The Liquidity Ratio and Debt Ratios are really low at 0.61 and 0.63 for 2018. This basically means that the current assets cannot cover the current liabilities and that the assets cannot cover the liabilities. The thing is that Deferred Revenue is a large part of the liabilities at some 80% to 90% of the liabilities.
The Total Return per year is shown below for years of 5 to 18 to the end of 2018 in CDN$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The Total Return per year is shown below for years of 5 to 17 to the end of 2018 in US$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 11.79, 13.95 and 16.11. The corresponding 10 year ratios are -1.34, -3.02 and -4.71. The corresponding historical ratios are -5.00, - 54 and -16.07. The problem with P/E Ratios is that until 2013, the company had no positive earnings. There were also negative earnings in 2017. The current P/E Ratio is 44.21 based on a stock price of $8.80 and 2019 ESP estimate of $0.20 CDN$ ($0.15 US$). It would appear that the stock price is relatively high as a P/E Ratio of 44.21 is relatively high. This would not be a good test at this time.
I cannot calculate a Graham Price. To be able to calculate a Graham Price you would need both a positive EPS and a positive Book Value. If I muck around a bit, I can come up with one of $2.69. On the same basis I get P/GP Ratios for the past 6 years at 2.39, 3.27 and 3.99. On this basis the current P/GP Ratio is 3.28 based on a current stock price of $8.80. This would suggest that the stock price is reasonable but above the median. It would be debatable how good this test is.
To get a real Price/Book Value Ratio, you really need to have a positive book value. This company has not had a positive book value since 2010. This test cannot be done.
I get an historical median dividend yield of 3.92% CDN$. Here historical is only 5 years. However, the current yield is 3.64% CDN$ based on a stock price of $8.80 CDN$ and dividends of $0.32 CDN$. The current yield is some 7.24% below the historical median yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 2.69 US$. The current P/S Ratio is 2.72 US$, based on 2019 Revenue estimate of $98 US$ and a stock price of $6.62 US$. The current P/S Ratio is 1% below the 10 year median ratio. This stock price testing suggests that the stock price relatively reasonable and below the median.
Results of stock price testing is that the only really clean test is the P/S Ratio test. Since the 10 year median P/E, P/GP and P/B Ratios cannot really be established, says nothing good about this stock. However, what I can establish in other testing suggests that the stock price is reasonable but above the median.
When I look at analysts’ recommendations, I find Strong Buy (1) and Hold (5). The consensus would be a Hold. The 12 month stock price is $9.50 CDN$ ($7.16 US$). This implies a total return of 11.61% CDN$ with 7.97% from capital gains and 3.64% from dividends.
See what analysts are saying about this stock on Stock Chase. Some think it is or will be a takeover target. Karen Thomas on Motley Foolsays why she thinks this is a must have software company. Ben Rossbaum on Simply Wall Street looks at return on capital employed and finds it good. A story filed under Business Week in the Financial Post talks about one of the largest US school boards signing an agreement with Absolute Software.
Absolute Software Corp provides endpoint security and data risk management solutions for commercial, healthcare, education, and government customers. Its products and solutions include endpoint security, industry solutions, application resiliency, endpoint data discovery, professional services, and investigations. The company's products and solutions are powered by its patented persistence technology. It generates the majority of sales in North America. Its web site is here Absolute Software Corporation.
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