Stockchase Opinions

Kim Bolton Converge Technology Solutions CTS-T DON'T BUY Oct 23, 2024

Very high debt to equity of around 99%. ROE is -33%. Financial metrics tell him to stand aside.

(Analysts’ price target is $6.25)
$4.440

Stock price when the opinion was issued

Technology
It's the ideal tool to help you make quicker, more informed decisions for managing and tracking your investments.

You might be interested:

PAST TOP PICK
(A Top Pick Mar 12/24, Down 15%)*Note the short timeframe.

Fundamentally, the story hasn't changed. Market's gone through a correction. Very inexpensive. Good play on AI, as purchases in that area are made through a company like this. Be patient. Low valuation, raised dividend, buying back stock, you'll be fine.

BUY ON WEAKNESS

It's done OK, but not as great as the big names. 12-month target is $6.55. Pretty widely held. Removed from the TSX Composite, so that dragged it out of some portfolios. Buy in thirds here at $4.70, $4.50, and $4.25.

PARTIAL BUY

Will see strength in the tech sector going forward. Would recommend buying if the chart begins to turn. Seeing upside in the stock. 

BUY
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

We continue to like CTS, and although its recent momentum has not been favourable, we believe its long-term value is still in play. It pays a small yield of 1.4%, analysts expect decent forward sales and earnings growth, albeit slightly lumpy, but its valuation reflects this, at 7X forward earnings.  Its valuation is cheap, its debt levels are fine, and its free cash flow is impressive. While recent momentum has not been great, we continue to believe its valuation will re-rate as its fundamentals continue to improve. 
Unlock Premium - Try 5i Free

WAIT

Owns small amount of shares. M&A has paused lately. Strategic review didn't go well. Time will tell whether business will continue to perform. Wait and see type of stock.  

SELL

They don't make a lot of profit. Cut it and move on. Take a tax loss.

SELL

Company has been disappointing lately. 2020 was a good year, but since then growth has slowed. Earnings not matching expectations. Share price is cheap, but better options out there for investors. Has sold shares. Management team not meeting with investors enough. 

WATCH
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

Average target is now $5.04. Post-earnings, Scotiabank lowered its rating from $5 to $4. At less than 9X earnings it certainly can still be called cheap. Q3 results showed EPS of 12c, beating estimates of 9.5c. Revenue of $630.7M slightly missed estimates of $639.7M. EBITDA missed estimates by 14%. Guidance was mostly inline with estimates. Q3 sales fell 8.9% and we certainly would prefer to see this trend reverse. The CC did not add a whole lot. The CEO/Board transition is ahead of plan. CTS continues to return capital to shareholders (buybacks and dividends). CTS is not seeing attractive acquisitions and prefers to buyback its stock over making a mis-priced deal. With rising cash flow conversion the balance sheet is in much better shape, with net debt less than six months of cash flow now. This 'should' help the valuation multiple over time. 
Unlock Premium - Try 5i Free 

DON'T BUY

It is not getting it done with a lot of execution not happening now. It is cheap but needs a private equity group to take it out and have new management. There is already anticipation of a takeout so it is risky.