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Constellation Software Inc. (CSU)
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Descartes Systems Group Inc. (The) (DSG)
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Enghouse Systems Limited (ENGH)
Q: Peter and His Wonder Team
I have followed this company for some time and considering wether I should buy it. I think it is inexpensive but not sure if it is a value trap...if you know what I mean and I know you do. Please give me your opinion on this company and what is the risk factor! Thanks your expertise is always helpful in my decisions.
I have followed this company for some time and considering wether I should buy it. I think it is inexpensive but not sure if it is a value trap...if you know what I mean and I know you do. Please give me your opinion on this company and what is the risk factor! Thanks your expertise is always helpful in my decisions.
5i Research Answer:
ENGH is trading at 17x Forward P/E, a meaningful discount relative to a few acquisitive growth peers like DSG or CSU. This is mainly because ENGH’s revenue growth has been quite weak and inconsistent in recent years. ENGH also pays a high dividend yield, which is inconsistent with the shareholder base that looks for growth and compounding. The investment in ENGH is a bet on the company’s ability to make acquisitions and grow earnings over time. Despite its cheap valuation, we think investors are better off paying a premium and betting on serial acquirers with the ability to reinvest all of their earnings back to grow the business (through acquisition).