Is it a good company at a reasonable price? This would not be a company I would invest in. It is not a dividend growth stock. I wonder if it makes sense for this stock to pay a dividend at all. I do not like most of the Debt Ratios and I find the debt too high. I also do not like the fact that it is difficult to do valid stock price testing. The price would seem to be at a reasonable level. I think that this is a stock to buy for capital gains, but there are lots of risks involved.
I do not own this stock of Absolute Software Corporation (TSX-ABST, NASDAQ-ABST). 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 the EPS loss was due to cost that were higher than Revenue, with a Ratio of 1.04. Interest expense is up because of the debt going from $0 to 264M. The Long Term Debt/Market Cap Ratio is now 0.60. Also, the Intangible assets went from $0 to $117.54M and the Goodwill went from $1.10M to $240.76M. The Intangible and Goodwill/Market Cap Ratio went from 0.00 to 0.85. On July 1, 2021, the Company completed the acquisition of 100% of NetMotion Software Inc.
If you had invested in this company in December 2012, for $1,004.70 you would have bought 197 shares at $5.10 per share. In December 2022, after 10 years you would have received $577.21 in dividends. The stock would be worth $2,785.58. Your total return would have been $3,362.79.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $5.10 | $1,004.70 | 197 | 10 | $577.21 | $2,785.58 | $3,362.79 |
The dividend yields are moderate with dividend growth non-existent. The current dividend yield is moderate (2% to 4% ranges) at 2.01%. The 5, 10 and historical dividend yields are also moderate at 3.05%, 3.46% and 3.46%. The last dividend increase was in 2017 and dividends have been flat since. Dividends are paid in CDN$ although the reporting for this company is in US$.
The Dividend Payout Ratios (DPR) are fine for Cash Flow, but should the company pay a dividend if they cannot earn a profit? The DPR for EPS for 2022 is negative because of an earnings loss. The 5 year coverage is 1,297%. The DPR for Cash Flow per Share (CFPS) for 2022 is 31% with 5 year coverage at 39%. The DPR for Free Cash Flow (FCF) for 2022 is 33% with 5 year coverage at 56%.
There are few good Debt Ratios and this is a problem. The company took on Long Term Debt in 2022 and their Long Term Debt/Market Cap went from 0.00 to 0.60. They also took on Intangibles and goodwill assets in 2022. Their Intangibles Goodwill/Market Cap Ratio went from 0.00 to 0.81. They also have debt of Deferred Revenue, which really complicates things.
The Liquidity Ratio for 2022 is low at 0.78. Adding in Cash Flow after dividends just gets you to 0.94. If you consider Deferred Revenue, then the ratio is 3.37. The Debt Ratio is low at 1.01. I like to see this ratio at 1.50 or higher. The Leverage and Debt/Equity Ratios are really high at 173.68 and 172.68. I prefer these to be under 2.00 and 1.00. So, these last ratios are awful. If you account for Deferred Revenue, they are 2.60 and 2.59, so the Debt/Equity Ratio is still too high.
The Total Return per year is shown below for years of 5 to 22 to the end of 2022 in CDN$. 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 chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2017 | 5 | 0.00% | 19.09% | 15.50% | 3.59% |
| 2012 | 10 | 5.36% | 14.44% | 10.74% | 3.70% |
| 2007 | 15 | -0.50% | -1.72% | 1.22% | |
| 2002 | 20 | 27.80% | 24.38% | 3.42% | |
| 2000 | 22 | 18.94% | 16.85% | 2.09% |
The Total Return per year is shown below for years of 5 to 21 to the end of 2022 in US$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below. The differences in the CDN$ and US$ return is due to currency exchange and the stock is not as often traded in the US market.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2017 | 5 | 0.14% | 17.44% | 13.88% | 3.55% |
| 2012 | 10 | 3.14% | 10.84% | 7.49% | 3.35% |
| 2007 | 15 | -2.51% | -3.69% | 1.18% | |
| 2002 | 20 | 25.91% | 22.51% | 3.40% | |
| 2001 | 21 | 23.65% | 20.72% | 2.93% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 29.42, 34.32, and 42.22. The corresponding 10 year ratios are 40.32, 51.17 and 61.88. The corresponding historical ratios are negative and so of no value. The current P/E Ratio is negative and so of no value. The P/E Ratio for 2024 is 239.17 and the P/E Ratio for 2025 is 42.71. This last ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median. However, the P/E Ratios are very high. Also, the further out an estimate is, the more likely it is to be very wrong. So, this is not a good test.
I estimate a Graham Price of $2.75. The 10-year low, median, and high median Price/Graham Price Ratios are 2.41, 3.27 and 3.99. The current P/GP Ratio is 5.79 based on a stock price of $15.93. This ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
This test does not improve with the 2024 P/GP Ratio of 6.51 with a Graham Price of $2.45. The Graham Price for 2025 is 5.79 and will give a P/GP Ratio of 2.75 based on a current stock price of $15.93. This ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median. It has the same problem as with the P/E Ratio testing in that the further we go out with estimates the more unreliable they tend to be.
I get a 10-year median Price/Book Value per Share Ratio of 2.59 when I look at Book Value excluding Deferred Revenue. The current P/B Ratio is 3.06 based on a stock price of $11.96 and Book Value of $200M. The current P/B Raito is 18% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. This testing is in US$.
I get a 10-year median Price/Cash Flow per Share Ratio of 16.00. The current P/CF Ratio is 13.00 based on Cash Flow per Share estimate for 2023 of $0.92, Cash Flow of $47M and a stock price of $11.96. The current ratio is 19% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median. This testing is in US$ and you will get a similar result in CDN$.
I get an historical median dividend yield of 3.46%. The current dividend yield is 2.01% based on dividends of $0.32 and a stock price of $15.93. The current yield is 42% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. A problem with this testing is that the dividends have been flat for 6 years.
I get a 10 year median dividend yield of 3.46%. The current dividend yield is 2.01% based on dividends of $0.32 and a stock price of $15.93. The current yield is 42% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive. A problem with this testing is that the dividends have been flat for 6 years.
The 10-year median Price/Sales (Revenue) Ratio is 2.77. The current P/S Ratio is 2.53 based on Revenue estimate for 2023 of $242M, Revenue per Share of $4.73 and a stock price of $11.96. The current is 9% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price might be reasonable. The P/S Ratio test is good and it shows the stock price is reasonable. The other good test is the P/CF test which also shows the stock price as reasonable. There are problems with most of the other testing. It is never a good sign when there are problems with most of the testing.
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 $14.85 ($11.15 US$). This implies a loss of 4.75% with a capital loss of 6.76% and dividends of 2.01% based on a current price of $15.93. the recommendations and 12 month consensus on the stock price seems at odds.
Analyst on Stock Chase think this stock is a Buy. Stock Chase gives this stock 4 stars out of 5. It is not on the Money Sense List. Ambrose O'Callaghan on Motley Fool is impressed with the recent run up in this stock. Sneha Nahata on Motley Fool thinks that this company can be a solid long-term stock one can buy under $20. The company put out a Press Release on their 2022 results. A Simply Wall Street report on Yahoo Finance looks at this stock and says it is not a good dividend stock. Simply Wall Street gives this stock 3 stars out of 5. It also lists 4 warnings of negative shareholders equity; has a high level of debt; dividend of 1.99% is not well covered; and shareholders have been diluted in the past year
Absolute Software Corp is engaged in the development, marketing, and provision of a cloud-based endpoint visibility and control platform that provides management and security of computing devices. Geographically, it derives a majority of revenue from the United States and also has a presence in Canada and the Rest of world. Its web site is here Absolute Software Corporation.
The last stock I wrote about was about was Exco Technologies Ltd (TSX-XTC, OTC-EXCOF) ... learn more. The next stock I will write about will be Canadian National Railway (TSX-CNR, NYSE-CNI) ... learn more on Monday, February 6, 2023 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.
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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.
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