Earnings per share growth of 31.8 %

Are shares of Pason Systems Inc. (PSI-TSX, $20.77) overpriced? It’s likely, says editor Marc Johnson. He’s downgrading the international oil services company to a “hold.” The shares have risen 2.3 per cent since April of this year. And Pason now trades at 20.2 times its expected earnings of $0.90 a share for 2013. Yes, earnings are growing – but this multiple, opines Mr. Johnson, “is excessive.”

Along the same lines, Pason trades at a high price-to-cash-flow ratio of 14.9. It’s also far above its book value of $4.29 a share. But there’s an upside: the Calgary-based firm is debt free and holds more than $195 million in cash. And Pason’s growing earnings should allow it to continue paying dividends.

For Mr. Johnson, Pason Systems is now a “hold” for dividends and, “eventually,” gains.

Another stock that’s climbed since spring is Enghouse Systems Ltd. (ESL-TSX, $25) – now up by almost a third. For its fiscal year 2013 (ends Oct. 31), this global provider of enterprise software services is expected to earn $0.85 a share.

But all eyes are on the company’s fiscal 2014 expected earnings of $1.12 a share. Using this estimate, Enghouse trades at a price-to-earnings ratio of 23.5. “That’s high,” says Mr. Johnson, “but its earnings per share growth of 31.8 per cent is even higher.”

There’s more: not only does this debt-free, “dividend aristocrat” hold cash of $80.9 million, but it has raised its dividend each year since fiscal 2007. For Mr. Johnson, Enghouse is a “buy” for long-term gains and rising dividends – but only if you can accept higher risk.




The Investment Reporter
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