Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Computer Programs & Systems Inc (CPSI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Computer Programs and Systems, Inc. (CPSI) is a provider of healthcare information technology (IT) solutions for rural and community hospitals and post-acute care facilities. The Company provides, on an integrated basis, enterprise-wide clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations. Additionally, CPSI provides other IT solutions, including business management services, remote hosting, networking technologies and other related services. It supports approximately 1,300 acute care facilities and over 3,300 post-acute care facilities with a customer base within the domestic rural and community healthcare market. Its target market includes rural and community hospitals with approximately 300 acute care beds. The Company’s focus within its target market is on hospitals with over 100 acute care beds.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$328,776,382||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.41||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||21.95%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||13.82||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.01||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.41||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||10.80||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-3.11%|
|MG Value based on 3% Growth||$24.71|
|MG Value based on 0% Growth||$14.48|
|Market Implied Growth Rate||2.66%|
|% of Intrinsic Value||605.07%|
Computer Programs & Systems, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.15 in 2012 to an estimated $1.7 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.66% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Computer Programs & Systems, Inc. revealed the company was trading above its Graham Number of $9.26. The company pays a dividend of $2.26 per share, for a yield of 9.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.82, which was below the industry average of 38.13, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.38.
Computer Programs & Systems, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$10.38|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Total Current Assets||$47,948,000|
|Total Current Liabilities||$34,005,000|
|Shares Outstanding (Diluted Average)||13,327,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.33|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.70|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.