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 dividend increases stopped last year. They really cannot afford the dividends. They are paying out more than the earnings and Free Cash Flow. The DPR for CF is too high. The company has a negative book value mainly because of Deferred Revenue.
The other thing is that stock price went up just over 12% the last 2 years and is up by 11% so far this year. Revenue declined in 2016 and they had an earnings loss in 2017. They do seem to be recovering from both of these. The 12 months EPS to the end of the second quarter was $0.25 up from $0.18 in 2019.
The dividends are paid in CDN$. Dividend yields are moderate (2% to 4% ranges). The current dividend is 3.17%. The 5, 6 and historical dividend yields are 4.26%. 3.96% and 3.96%. The dividend growth has been low (under 8%) to moderate (8% to 14% ranges). See charts below. The problem is that this company has kept the dividend flat for the past two years.
The Dividend Payout Ratios are too high. They cannot afford the current dividend. The DPR for EPS for 2019 is 178% with 5 year coverage at 258%. The DPR for CFPS for 2019 is 39% with 5 year coverage at 60%. The DPR for Free Cash Flow for 2019 is 141% with 5 year coverage at 139%. Dividend Coverage Ratio for 2019 is 0.71.
Debt Ratios are awful mostly. The only real long term debt the company has is Deferred Revenue, and Debt/Market Cap Ratio is 0.23 which is good. Liquidity Ratio is 0.71. Add in Cash Flow after dividends, it is 0.74. Add in the current portion of Deferred Revenue and you get 3.51. The Debt Ratio is 0.67 and this means that the book value is negative. The reason again is Deferred Revenue.
The Total Return per year is shown below for years of 5 to 19 to the end of 2019 CDN$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 6.83% | 5.07% | 1.39% | 3.68% |
| 2009 | 10 | 8.15% | 7.81% | 5.18% | 2.63% |
| 2004 | 15 | 28.61% | 25.17% | 3.45% | |
| 1999 | 19 | 18.73% | 16.73% | 2.00% |
The Total Return per year is shown below for years of 5 to 19 to the end of 2019 US$. 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 chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 4.28% | 2.35% | -1.11% | 3.46% |
| 2009 | 10 | 4.47% | 4.87% | 2.38% | 2.50% |
| 2004 | 15 | 26.35% | 22.93% | 3.42% | |
| 2000 | 19 | 24.14% | 21.48% | 2.66% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 34.12, 40.74 and 47.35. The corresponding 10 year ratios are 18.55, 22.68 and 26.81. The historical P/E Ratios are all negative. They had earning losses until 2012. The current P/E Ratio is 34.58 based on a stock price of $10.11 and EPS of $0.29 CDN$ ($0.22 US$). This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $3.22 The 10 year low, median, and high median Price/Graham Price Ratios are 2.37, 3.11 and 3.88. The current P/GP Ratio is 3.14 based on a stock price of $10.11. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I cannot do a P/B Ratios test because the book value is negative.
I get an historical median dividend yield of 3.96%. The current dividend yield is 3.17% based on $0.32 CDN$ and a stock price of $10.11. The current dividend is 20% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive. The historical median dividend year is just 6 years ago, so there is no sense doing a 10 year median dividend yield test.
The 10 year median Price/Sales (Revenue) Ratio is 2.68. The current P/S Ratio is 3.10 based on 2020 Revenue estimate of $104, Revenue per Share of $2.46 and a stock price of $7.26. The current ratio is some 16% above the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. This is in US$. You can a similar outcome using CDN$.
Results of stock price testing is that the stock price is the price is reasonable to expensive. The best test is the P/S Ratio test. The problem with the dividend yield test is that I do think the dividends are in danger of being cut. They cannot afford them and they are no longer increasing them. The P/GP maybe unreliable because the book value is negative and I took my best stab at getting a Graham Price. The P/E Ratios went from negative to very high ones, so you have to wonder about this test. I cannot do a P/B Ratio test because of a negative Book Value.
Is it a good company at a reasonable price? This is a very risky Tech stock. What they might do about the dividends is unknown. They so far can cover them with the cash they have. Cash is coming from sale of investments, cash flow and selling of shares. Currently, I personally would not be interested in this stock, but I will keep an eye on it.
When I look at analysts’ recommendations, I find Strong Buy (3) and Hold (3). The consensus would be a Buy. The 12 months stock price is $7.97 US$ or $10.59 CDN$. This implies a total return of 7.93% with 4.77% from capital gains and 3.17% from dividends based on a current stock price of $10.11 CDN$.
See what analysts are saying on Stock Chase. They have stopped following this stock. This can happen when a small company is not doing well. Aditya Raghunath on Motley Fool thinks this is a growth stock for 2020. A writer on Simply wall street thinks this is not a good dividend stock as they are paying out too much and they have cut the dividends in the past.. A writer on Simply Wall Street says analysts have become more optimistic after the second quarterly results. Jayson Maclean on Can Tech says that Paradigm Capital analyst Kevin Krishnaratne has upped his target price.
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. Its web site is here Absolute Software Corporation.
The last stock I wrote about was about was Canadian National Railway (TSX-CNR, NYSE-CNI) ... learn more. The next stock I will write about will be Intact Financial Corp (TSX-IFC, OTC-IFCZF) ... learn more on Monday, February 10, 2020 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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