Globe & Mail Number Cruncher ColumnThe article from Tuesday's Globe lists CPG in a table based on "quality and profitability".
Factors cited were:
- 12m EVA change 1398.9%. Shows profit increasing faster than cost of capital
- 12m NOPAT change 12.3%. Net operating profit after tax minus capex
- FGV/MV (future growth value/market value) -31.2%. How much of the current stock price is based on expectations of future growth. Shows CPG current price means current price is based on negative growth, i.e., low expectations
- EPI (economic performance index) .5. Ratio of return on capital to cost of capital. 1+ is the desired level so CPG has work to do on this. Highest at 2.4 was Parex Resources (PXT on the TSX)
- FCF/Capital -2.2%. Shows CPG did not generate free cash flow in its latest quarter. Was about -5% for trailing 12 months. This metric should move into positive terrritory over the coming quarters. Parex again lead the pack at 20.2%
There were certainly companies with better numbers in the table but the thing that stands out to me is the FGV/MV percentage. The market is saying that this company is not expected to grow earnings at all and, in fact, its profitability is expected to shrink. With that much pessimism built into the current price I think there's money to made when optimism returns. The highest ratio was for CNQ at 33.9% implying that 1/3 of the current stock price is based on anticipation of future profit growth. As the article points out, the higher the FGV/MV ratio, the higher the risk. CPG therefore is relatively low risk given the negative FGV/MV ratio.
The article is called "Number Cruncher" which appears from time to time in the Globe. You need to sign up for "Globe Unlimited" in order to access many articles such as this online. It's not cheap at around C$24/month. It's free if you're a paper edition subscriber which runs about C$62/month for 6 papers a week.