Converge Technology Solutions (CTS.TO)

Had a big move technically. Be careful, as it looks as though it's going for a head and shoulder pattern. Under 8x 2024 numbers, growing 19%. TSX is brightening, as long as the economy stays like this. Good one to buy.

Unlike Nvidia, CTS trades at 5.5x PE. Has a lot of upside where profits are growing faster than revenues.

CTS had a good update, but we would like to see the final year profit numbers and would also like to see more quarters to ensure a positive trend has been established. We are comfortable with it as a HOLD but less so as an ADD. On the TFSA question there is no answer that suits everyone. We would suggest 8 to 12. 
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Doesn't follow it closely. Gross margins are 15% max. They were growing by acquisition until higher interest rates paused that. Organic growth is around 5% at best. It doesn't deserve a high valuation. They didn't attract a high enough offer to be bought out.

In 2020/21 it was growing rapidly but has pulled back from its high of $12. There were some missteps and it missed a couple of quarters. However in the past 6 to 12 months it has started focusing on integrating the companies they bought and not buying new ones. It is also focusing on cost control and cross selling. It is doing the right things now but it will take some time to expand their margins.

A pandemic darling, but their valuation became extreme and they had trouble managing their profitability. As they remained profitable, it couldn't keep up with the street's rising expectations, and so it sold off hard. It bottomed last fall. He bought it as it started to rebound, hoping for rising profitability.

Technology in Canada has been number 1 over the last month and number 2 over the last week. Converge hasn't participated in the long term tech trend. It has had a decent bounce recently but he is not sure if its downward trend is over. He doesn't know its fundamentals but feels there are better places to be in tech.

He follows it. Very much a reseller of MSFT software. Extremely competitive industry, and these guys are only regional. Very good customer service. Not profitable, and that's the problem.

Canadian tech company that provides cyber security etc.
Expanded massively through M&A the past 5 years.
Low margin business.
Share price not performing the past 1-2 years.
Needs to demonstrate profitability.
Not buying at this time. 

The stock's momentum has certainly been negative, however, it pays a yield of 1.2%, has shown good revenue growth, and generates free cash flow. It has a healthy balance sheet, but its profit margins are thin. Valuation is quite cheap, with a forward sales multiple of 0.3X, a forward P/E of 7.1X, and a price to book of 1.1X. It expects small revenue growth over the next few years, a slight decline in earnings this year with strong growth thereafter. We typically do not like buying on negative momentum and would prefer to see the stock find its footing, but we would be comfortable with holding here, and for an investor with a long timeframe and has a high risk tolerance, we would be OK with adding here in the event that it rebounds from these levels
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Everything that could go wrong with this went wrong. A company was interested in buying them, but didn't, and CTS missed a couple of quarters. Then, it was removed from the TSX. Now we're at maximum pessimism and the company is not doing any buying. Margins should rise. It will take time to recover, but he would buy at current levels.

Keep in mind that the buyback is not mandatory. CTS can choose not to do anything. Free cash flow was $65M in the last 12 months, so it has some capacity. But with net debt at $320M we would like to see lower debt instead. There has been some net insider buying in the last six months, but a new committment would go a long way in helping investor confidence. We are OK holding, for now. 
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News that it's leaving the TSX composite index. Pretty well priced now. Be patient, and you can probably buy closer to $3.25. Regional, end-to-end IT provider. Talk about incorporating AI.

 Things soured a bit because the strategic review didn't see enough bids. However it is at a good valuation now at 8 X 2024 earnings and the growth rate looks much higher going forward. Its first quarter was pretty good, it has a substantial stock buy-back program and its balance sheet is OK. It is shifting from M&A to organic growth. It sets up well for the next 3 to 5 years and he would buy it in a non-registered account.

Rollup strategy. Now in Germany and UK. Moving more into managed services. Tough time with acquisitions, margins haven't improved, working capital hasn't materialized. Still believes in the strategy. Lots of upside if they can produce a couple of good quarters.