Enghouse Systems (ENGH.TO)

It is about the guy who is running it. He accumulated a serious of software companies that don’t get the premium multiple they deserve. It is like Constellation Software. He has tremendous cash flow. At some point he will sell this company. In the interim you have a nice steady company that generates a steady cash flow.

The original owner of the company was responsible for some very good acquisitions. He continues to grow the business by acquisition. The challenge is the valuations are under tight scrutiny. He would prefer Open Text (OTEX-T).

A software company that has been pretty aggressive on growth through acquisition, using their relatively highly valued equity paper to buy all these small companies, roll them in, and get synergies. Software in general is becoming a much more competitive from an M&A standpoint, so it is going to be harder to find cheap deals. Also, it is not the cheapest stock. He is not interested in this.

Doesn’t follow this closely. The price has come down quite a bit. A software company that have been growing primarily through acquisitions. Thinks Amazon (AMZN-Q) has indicated they are going to enter into the same software market, and some analysts have indicated the space is going to get more competitive. A high multiple stock to begin with, and is not considered inexpensive.

It was very much consolidating all of last year. It looks like it is now trying to break out. It tested recently. You don’t want to see that broken.

RBC left a buy on the stock after issuing a terrible report on this company. AMZN-Q has said it will offer similar software to ENGH-T. That is the negative story. But she does not think it will make much difference in the short run. Don’t write them off.

It is consolidating here. He would like to see it take out its previous highs based on improved financial metrics.

This has been a very successful company over the last number of years. It is a growth through acquisition type of model, buying a bunch of small software companies, cutting out the costs, and trying to put it together in a bigger rollup strategy. It has always been expensive.

A sideways trading stock, but there is not a lot of downside unless it breaks $50. Also, there is not a lot of upside, beyond $55 maybe. If you can make 10%, 12%, 15% on every trade over and over, this is a no-brainer. For a “buy and hold” investor, he would probably avoid this stock.

This does not meet his criteria. A software company. His preference would be to own Constellation Software (CSU-T) or Open Text (OTC-T).

Essentially a consolidator of software companies. Think of it as a smaller/younger version of Constellation Software (CSU-T), but trading at a little bit lower multiples. Like Constellation they have had a rough 2016. Likes the name, but probably prefers Descarte (DSG-T) in the sector. They have proven to be relatively disciplined as an acquirer. Not a bad name to hold as a long-term investment.

(Market Call Minute.) If it pulled back, he would look at entering this.

This has done well, but the stock has pulled back because of recent negative earnings surprise. However, it still ranks at 50 out of 700 stocks, being in the top 10%. PE on a trailing basis is not cheap at 35X earnings, compared to 13% earnings growth. The stock looks expensive. This typically grows by acquisition.

This is a really long term thing. There is no need to switch. He is doing well with it. Don’t overweight it, though. Stay with it.

Sold his holdings, not because there was anything wrong with the business, but the stock just got expensive in relation to its growth rate. The stock is looking pretty rich. Fundamentally it is a great company and he thinks you will still make money on the stock. This is a Hold, but if it goes lower it would be a Buy.