Q: This company seems to be doing a lot of things right. The ceo Dan Matlow knows this space well, based on my conversations with him a few years ago. It's business is primarily in the UK but it is making some inroads in Ontario. How does one go about evaluating this business: what comparable companies and what ratios etc do you use? Thank you as I am not very good at determining values in the software industry.
5i Research Answer:
For VHI, two comparable Canadian companies could be WELL and KSI. Software companies typically use earnings and sales multiples as the basis for valuation. For VHI an investor could use forward price-to-earnings (28.9x) and forward price-to-sales (3.1x). WELL has a forward price-to-earnings at 13.6x and forward price-to-sales at 1.0x. KSI has forward price-to-sales of 5.6x while forward price-to-earnings is not available.