There are a number of great companies in the market today, but there are also many that are overvalued. The ModernGraham valuation model selected five of the most overvalued Canadian companies.
Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.
Suncor Energy Inc. (TSX:SU, Financial)
Suncor Energy does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last 10 years and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $2.26 in 2013 to an estimated 84 cents for 2017. This level of demonstrated earnings growth does not support the market's implied estimate of 20.49% annual earnings growth over the next seven to 10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Suncor Energy revealed the company was trading above its Graham Number of $33.76. The company pays a dividend of $1.16 per share for a yield of 2.8%, putting it among the best dividend-paying stocks today. Its PEmg (price over earnings per share) was 49.48, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its net current asset value (NCAV) of $-19.79. (See the full valuation)
Crombie Real Estate Investment Trust (TSX:CRR.UN, Financial)
Crombie does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last 10 years and the high PEmg and price-book (P/B) ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from negative eight cents in 2012 to an estimated -13 cents for 2016. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Crombie revealed the company was trading above its Graham Number of $8.59. The company pays a dividend of 89 cents per share for a yield of 6.5%, putting it among the best dividend-paying stocks today. Its PEmg was -105.91, below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-17.03. (See the full valuation)
Crew Energy Inc. (TSX:CR, Financial)
Crew Energy does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability over the last 10 years, the poor dividend history and the high PEmg and P/B ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, the lack of earnings stability or growth over the last five years and the lack of dividends. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from -36 cents in 2012 to an estimated -81 cents for 2016. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Crew Energy revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg was -7.17. Finally, the company was trading above its NCAV of $-2.63. (See the full valuation)
Crescent Point Energy Corp. (TSX:CPG, Financial)
Crescent Point does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last 10 years and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets and the lack of earnings stability or growth over the last five years. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after seeing its EPSmg decline from 65 cents in 2012 to an estimated -24 cents for 2016. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Crescent Point revealed the company was trading above its Graham Number of $0. The company pays a dividend of 74 cents per share for a yield of 5.2%, putting it among the best dividend-paying stocks today. Its PEmg was -60.08, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of $-12.2. (See the full valuation)
Spartan Energy Corp. (TSX:SPE, Financial)
Spartan Energy does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last 10 years, the poor dividend history and the high PEmg and P/B ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, the lack of earnings stability over the last five years and the lack of dividends. As a result, all value investors should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for valuation, the company appears to be overvalued after growing its EPSmg from -21 cents in 2012 to an estimated negative nine cents for 2016. This level of negative earnings does not support a positive valuation. As a result, the valuation model returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Spartan Energy revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg was -30.22, below the industry average of 69.19, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its NCAV of -70 cents. (See the full valuation)
What do you think? Are these companies a good value for investors? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclosure:Â The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer. This article first appeared on ModernGraham. This article first appeared on ModernGraham.
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