samedi 19 décembre 2020

Finding your niche

Finding your niche as an investor is, in my opinion, very important.

Some people like oil and gas stocks. Some others like value investing. Some others like very high growth companies, whatever the valuation is. And while I'm not comfortable with these approaches, it's fine. As long as it works for them, it's OK. However, if they don't analyze their performance and don't compare themseleves with the S&P500, I think that an important piece is missing. Like I wrote in my last post, why doing all that if you're underperforming year after year? An index fund will give you 8-10% on the long term without any effort...

Anyway, your niche is your niche and you better have some criterias to respect before investing on a company. Almost everytime I buy a stock without taking the time to analyze it and compare it to my other stocks, I regret it. 

Here's an example of how it works for me:

Recently, I had CGI Group in my portfolio. I've always thought that it was a good stock, but the growth has never been amazing, except after some acquisition. Let's forget the PE ratio and just take a look at some metrics for the two stocks

I decided to buy Enghouse Systems instead (a stock that I had some years ago).

Performance last 10 years

CGI: 528%

ENGH: 1322%

Performance last 5 years

CGI: 74%

ENGH: 90%

EPS growth from 2015 to 2020

CGI: + 67%

ENGH: + 200%

Average ROE last 5 years

CGI: 17

ENGH: 19


CGI: 10%

ENGH: 20%

Debt Level

CGI: medium debt

ENGH: No debt

Cash on hand

CGI: good position of cash (about 50% of the recent annual earnings)

ENGH: lots of cash (2,5 times recent annual earnings)

Enghouse wins on every aspect.

Of course, the PE of both stocks is not the same. Enghouse is more expensive than GIB. But that's always like that. The better performer is more pricey. However, as long as the price is not completely irrational, I'm now going towards the best performer. That's how I work. 

CGI Group is a very good company. I might very well go back to it one day. But for now, I've found something better and I plan to go on for a while with Enghouse. Anyway, it's not a debate between these two stocks, it's just my way of doing and I encourage everybody to always compare what they hold with what they could hold and what they would gain and loss with a change. 

6 commentaires:

  1. Market capitalization is another relevant criteria of comparison:

    Enghouse: 3.4 GB
    CGI: 24 GB

    Enghouse has the potential to be a ten bagger whereas quite not of CGI.
    Although it is a good business, the growth potential of CGI was the reason I sold this position few months ago

  2. I don’t know. Take a look at Shopify, Facebook, Amazon, Tesla... all huge, all growing a lot.

  3. CGI is a consulting service. you can grow it but you cant scale it. Its labour. ENGH is 3 divisions with many enterprise software solutions. A holding company that is active in M&A. And with software you can scale. Bottom line, ENGH is the better business model. Now compare it to its peers. Not CGI.

  4. Great CDN tech company and a great buy. Congrats!

  5. Think CSU and ENGH would had been a better comparison... Btw Jason Del Vicairo was on bnn last week... Think To change your web site To "don't Fuck with the Jasons" 😁

  6. Its a no brainer! ENGH is a well run company with growth and no DEBT and CGI is not!