I am a noob investor (please be gentle) and currently have a small investment in the CTS stock, but I'm skeptical it can continue its current upward trajectory. I want to hear your thoughts about my short DD.
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Tl;dr – CTS grew a lot but also has a lot of debt.
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Currently, it is priced at 8.78 CAD (CTSDF $7.19)
– market cap 1.6bil
– P/S 1.6
– forward PE 17
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Bull case:
– improving economy, especially for smaller businesses
– greatly improved revenue YoY ($310mil in 2021 vs $ 241mil in 2020)
– positive net income acquired this year ($5.1mil vs loss of $1.6mil in 2020)
– cash flow of $68mil (increase from $26 last year)
– became profitable in latest quarter
– increased need for cybersecurity and cloud adoption with remote work; on the flip side, companies that had to cut back due to inability to make revenue in quarantine/resistance to remote work are expected to increase spending again as restrictions ease up
– cloud adoption is a trend that is expected to continue increasing regardless of the pandemic
– plans to expand into European market
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Bear case:
– stock price already saw an impressive 76% increase since January (and 575% increase YoY); may be overbought
– increased borrowing ($142mil vs $139mil last quarter); concerns about ability to make interest payments
– aggressive acquisition spree and heavy share dilution.
– trailing P/E is very high
– inflation
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What are your thoughts? Solid company with lots more room to grow? Or hyped-up stock that is just way-overvalued?
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Also note weird formatting, on mobile.
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