samedi 26 janvier 2019

Simulations Plus (SLP)

I don’t like nano and micro-caps. I’m not even sure that I like small caps. But, once in a while, there’s an interesting name here and there, and even if I usually don’t plan to buy them, I keep an eye on them.
Simulation Plus (SLP) is an interesting stock. It looks like a Computer Modeling Group (CMG.TO) for the pharma industry: They design and develop pharmaceutical simulation softwares for use in pharmaceutical researches and in the education of pharmacy and medical students. But while CMG is related to a cyclical industry, SLP is related to a steady industry. 
Like written before, that stock is on the frontier between micro-caps and small caps. The market cap is about 320 million dollars. 
Here’s a list of the pluses and the minuses. The size of the company is both a plus (a lot of room to grow) and a minus (not established business).
Plus :
Good predictability : 75% according to Value Line
Good industry
Very low Beta (around 0)
No debt
31% insider ownership
Good net profit margins (around 24%)
Good return on equity (around 20%)
Annual growth last 5 years: 21%
Estimated annual growth next 5 years: 20%

Minus :
Very small business (63 employees in november 2018)
High payout ratio for a growing business (around 60%)
Some dilution of the float (which is however normal for a growing company) but maybe they wouldn't have to issue shares if they didn't have a fucking payout ratio of 60%. 
Very expensive (current PE ratio: 40, Forward PE ratio: 36)

Overall, it looks like a good company. I like many things, such as the debt-free aspect and the high insider ownership.  The company looks healthy. But, we could find easily a stock with a growth slightly lower and a PE way lower. 
So, for me, SLP is to keep an eye on, but it should be at least 30% cheaper to interest me.

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