The shares of Pason Systems (TSX-PSI) have risen by 2.3 per cent since April of this year. That’s likely because it’s overpriced. We now downgrade Pason to a hold.
Pason trades at 20.2 times its expected earnings of 90 cents a share in 2013. While its earnings are growing, this multiple is excessive. Similarly, the company trades at a high price-to-cash-flow ratio of 14.9 times. And it trades far above its book value of $4.29 a share.
On the positive side, Pason remains debt free and holds cash of more than $195 million. This and its growing earnings should enable the company to continue to pay dividends. Pason Systems Inc. is now a hold for dividends and, eventually, gains.