DCM vs peers For this post I compare Data Communication (Dcm) with Supremex (sxp), Arc Document Solutions (arc) and R.R Donnelley and Sons (rrd). The first two companies are trading on the TSX while the other two are trading on the NYSE. I've decided to compare using enterprise value to gross profit instead of the more common EV to sales ratio. After all I'm more interested in the quality of sales and a company with higher gross margins should be "worth" more all else being equal. The next metric I decided to use is enterprise value to ebitda. All numbers are up to date using the last twelve trailing months of data.
EV = enterprise value
ebitda = "adjusted ebitda"
GP = gross profit
ttm= twelve trailing months
Ttm. EV to ebitda EV to GP
DCM 3.88 2.23
SXP 4.2 2.34
ARC 4.38 2.16
RRD 5.07 2.08
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"Avg excluding DCM" 4.55 2.19
Data Communication is trading close to the average of the 3 companies mentioned on an enterprise value to gross profit ratio. However, we are trading much lower on an enterprise value to ebitda ratio. What is interesting to note when comparing these companies is that only Supremex and Data Communication have shown an increase in gross profits over the last 4 years ( using stockhouse info) . Dcm has increased gross profits over the last 4 years by 3.7% compounded annually. On the other hand, Supremex has increased their gross profits by 5.5% compounded annually. R.R Donnelley and Sons as well as Arc Document solutions have decreased gross profits by 6.2% and 6.8% respectively, compounded annually.
It appears as if Data Comm and Supremex are undervalued compared to their American counterparts. I believe both of these companies will continue to see their share price appreciate over time. Both are deep valued turnaround stories that the market has mispriced but will take time to win over new investors.