Investment Technology Group Valuation – Initial Coverage $ITG
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 – January 2016. 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 Investment Technology Group (ITG) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Investment Technology Group, Inc. is an independent broker and financial technology firm. The Company operates through four segments: United States Operations, Canadian Operations, European Operations and Asia Pacific Operations. These segments offer a range of solutions for asset managers and broker-dealers in the areas of electronic brokerage, which includes self-directed trading by clients using algorithms, smart routing and matching in cash equities, futures and options through the POSIT crossing network; research, sales and trading, which provides equity research, syndicated research products and custom analysis; platforms, which includes trade order and execution management software applications in addition to network connectivity, and analytics, which includes tools to construct and manage a portfolio, and securities valuation.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of ITG – January 2017
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $646,851,375 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.45 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -49.34% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 58.94 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.64 | 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 | 1.45 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.03 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.34 |
| MG Growth Estimate | 15.00% |
| MG Value | $13.12 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $4.94 |
| MG Value based on 0% Growth | $2.90 |
| Market Implied Growth Rate | 25.22% |
| Current Price | $20.08 |
| % of Intrinsic Value | 153.10% |
Investment Technology Group 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 stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the low current ratio, and the lack of earnings stability 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 growing its EPSmg (normalized earnings) from $-2.92 in 2012 to an estimated $0.34 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 25.22% 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 Investment Technology Group revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.28 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 58.94, which was above the industry average of 21.33. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.78.
Investment Technology Group scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $6.78 |
| Graham Number | $0.00 |
| PEmg | 58.94 |
| Current Ratio | 1.45 |
| PB Ratio | 1.64 |
| Current Dividend | $0.28 |
| Dividend Yield | 1.39% |
| Number of Consecutive Years of Dividend Growth | 2 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Total Current Assets | $737,786,000 |
| Total Current Liabilities | $507,934,000 |
| Long-Term Debt | $7,918,000 |
| Total Assets | $917,102,000 |
| Intangible Assets | $57,068,000 |
| Total Liabilities | $515,852,000 |
| Shares Outstanding (Diluted Average) | 32,725,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | -$0.96 |
| Dec2015 | $2.63 |
| Dec2014 | $1.40 |
| Dec2013 | $0.82 |
| Dec2012 | -$6.45 |
| Dec2011 | -$4.42 |
| Dec2010 | $0.55 |
| Dec2009 | $0.97 |
| Dec2008 | $2.61 |
| Dec2007 | $2.48 |
| Dec2006 | $2.21 |
| Dec2005 | $1.60 |
| Dec2004 | $0.96 |
| Dec2003 | $0.89 |
| Dec2002 | $1.51 |
| Dec2001 | $1.62 |
| Dec2000 | $1.34 |
| Dec1999 | $0.95 |
| Dec1998 | $0.94 |
| Dec1997 | $1.42 |
| Dec1996 | $0.83 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.34 |
| Dec2015 | $0.26 |
| Dec2014 | -$1.16 |
| Dec2013 | -$2.19 |
| Dec2012 | -$2.92 |
| Dec2011 | -$0.62 |
| Dec2010 | $1.44 |
| Dec2009 | $1.92 |
| Dec2008 | $2.25 |
| Dec2007 | $1.92 |
| Dec2006 | $1.57 |
| Dec2005 | $1.28 |
| Dec2004 | $1.16 |
| Dec2003 | $1.27 |
| Dec2002 | $1.39 |
| Dec2001 | $1.31 |
| Dec2000 | $1.13 |
Recommended Reading:
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Disclaimer:
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.
