I do not own this stock of Enghouse Systems Ltd (TSX-ENGH, OTC-EGHSF). This stock has been recommended by Keystone Financial Publishing as a good Small Cap tech stock with dividend.
When I was updating my spreadsheet, I noticed I had to use Google to find things on this site. Even when Google gave me the link to the information, I had a hard time finding the information on the site. This was when I was looking for Members of the Board of Directors and Management Team.
There is a lot of insider selling Net Insider Selling 3.73 (where you would expect it to be closer to 0.01). Selling is by Chairman and Directors. (The chairman and CEO is the same person.) There were no sales by employees, but the employees I looked at had no shares but they do have stock options. This is strange.
The dividend yields are Low with dividend growth Good. The current dividend yield is Low (below 2%) at just 0.87%. The 5, 10 and historical dividend yields are also Low at 1.07%, 1.32% and 1.36%. The dividend growth is Good (15% or higher) at 17.34% increase per year over the past 5 years. The last increase was for 22.7% and it was done in 2020. With their fourth quarter financial announcement, Enghouse announces a special dividend of $1.50 per share. See the announcement on Cision.
The above combination of low yields and good growth in dividends means that the dividend yield on an original price paid 5, 10, 15 and 20 years ago would give a current dividend yield of 1.7%, 11.5%, 11.4% and 21.2%. Also, it means that the percentage of the original cost covered by dividends over the past 5, 10, 15 and 20 years would be 6.6%, 63.5%, 69% and 127.7%.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2020 is 28% with 5 year coverage at 30%. The DPR for CFPS for 2020 is 15% with 5 year coverage at 17%. The DPR for Free Cash Flow for 2020 is 16% with 5 year coverage at 20%. (Site I looked at seemed to agree on FCF.)
Debt Ratios are good. The company has no long term debt. The Liquidity Ratio for 2020 is 1.73. The Debt Ratio is 2.86. The Leverage and Debt/Equity Ratios for 2020 are 1.54 and 0.54.
The Total Return per year is shown below for years of 5 to 25 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | 17.37% | 11.42% | 10.65% | 0.77% |
| 2010 | 10 | 21.48% | 32.30% | 30.66% | 1.64% |
| 2005 | 15 | 20.95% | 20.81% | 19.99% | 0.82% |
| 2000 | 20 | 18.09% | 17.56% | 0.53% | |
| 1995 | 25 | 16.61% | 16.22% | 0.39% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 25.42. 29.94 and 33.47. The corresponding 10 year ratios are 24.43, 28.44 and 32.09. The corresponding historical ratios are 10.27, 20.73 and 25.47. The current P/E Ratio 35.02 based on a stock price of $61.99 and EPS estimate for 2021 of $1.77. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $18.90. The 10 year low, median, and high median Price/Graham Price Ratios are 2.04, 2.70 and 2.37. The current P/GP Ratio is 3.28 based on a stock price of $61.99. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 4.46. The current P/B Ratio is 6.91 based on a stock price of $61.99, Book Value of $496M and Book Value per Share of $8.97. The current P/B Ratio is 55% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Cash Flow per Share Ratio of 18.02. The current P/CF Ratio is 21.98 based on a stock price of $61.99, Cash Flow per Share estimate for 2021 of $2.82 and Cash Flow of $156M. The current ratio is 22% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 1.36%. The current dividend yield is 0.87% based on dividends of $0.54 and a stock price of $61.99. The current dividend yield is 36% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 1.12%. The current dividend yield is 0.87% based on dividends of $0.54 and a stock price of $61.99. The current dividend yield is 22% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 4.26. The current P/S Ratio is 6.25 based on Revenue estimate for 2021 of $549M, Revenue per Share of $9.92 and a stock price of $61.99. The current P/S Ratio is 47% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably expensive. Both the dividend yield tests show the stock price as expensive and it is confirmed by P/S Ratio test. There is nothing wrong with any of the tests and they all show that the stock price is expensive.
Is it a good company at a reasonable price? It would currently seem that the stock price is on the expensive side. To pass the two dividend yield tests and the P/S Ratio test the stock price would have to move to around $49.00. Then the stock price would still be above the median, but it would be in a reasonable range. I generally would not buy a dividend stock with a dividend yield less than 1% and the price would need to be $54 to get a 1% dividend yield.
I look at my spreadsheet and all I see is green ink. Revenue, Earnings, Cash Flow, Dividends, Stock Price are all growing. Shareholders have done well with this stock. I think it is a good stock and especially suited for people building a portfolio.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (3) and Hold (1). The consensus would be a Buy. The 12 month stock price consensus is $79.20. This implies a total return of 28.63% with 27.76% from capital gains and 0.87% from dividends.
Analysts like this stock on Stock Chase and most feel it is a buy. Amy Legate-Wolfe on Motley Fool thinks you should look at 3 stocks that did well over the past 10 years, including Enghouse. The Executive Summary on Simply Wall Street gives this stock 4 stars out 5 and lists 2 risks. A writer on Simply Wall Street says he is happy with Enghouse performance but is worried about analysts thinking earnings will fall. He could be confusing US and CDN currency, because in CDN$, earnings are not expected to fall. Jayson MacLean at CanTech Letter thinks you should start with a small position in this stock and see how it goes.
Enghouse Systems Ltd is a Canada-based provider of software and services to a variety of end markets. The firm's operations are organized in two segments namely, the Interactive Management Group and the Asset Management Group. The firm has operations in Canada, the United States, the United Kingdom, France, Germany, Sweden, Israel, Croatia, Denmark, Norway, India, Japan, Hong Kong, Singapore, and Australia etc. Its web site is here Enghouse Systems Ltd.
The last stock I wrote about was about was Sylogist Ltd (TSX-SYZ, OTC-SYZLF) ... learn more. The next stock I will write about will be Shaw Communications Inc (TSX-SJR.B, NYSE-SJR) ... learn more on Friday, January 29, 2021 around 5 pm. Tomorrow on my other blog I will write about Banks and Ratios 2.... learn more on Thursday, January 28, 2021 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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