Every Monday we feature “A Stock to Sell” as our daily post. With every stock we recommend as a sell, we give you a full explanation of why we advise against investing in the stock at this time.
Avigilon Corp., (symbol AVO on Toronto; www.avigilon.com), designs, makes and sells high-definition surveillance systems. Users can view the images from this equipment on computers, tablets and smartphones.
In the three months ended June 30, 2014, Avigilon’s revenue rose 66.2%, to $65.2 million from $39.2 million a year earlier. Excluding one-time items, earnings per share rose 20.0%, to $0.12 from $0.10. The company continued to increase its marketing spending and add staff to support its growth.
In April 2014, Avigilon raised $100 million by issuing 3.4 million shares at $29 each. The company now holds cash of $156.7 million, or $3.37 a share, and has no debt. It will use some of its cash to continue its expansion and make acquisitions, such as last year’s $17-million purchase of surveillance system firm RedCloud Security.
The conservative advantage
Conservative investors have one big advantage—when you guard your money, you’re ready for the tremendous opportunities that appear when the market moves up. Opportunities like Pat McKeough’s Safety-Conscious Stock of the Year for 2013. Bank of Nova Scotia proceeded to hit all-time highs, rising by as much as 12.9% while rewarding investors with the generous 3.9% dividend yield. Pat made it his Safety-Conscious Stock of the Year again for 2014 and it has risen by as much as 24% since he first picked it as his 2013 Stock of the Year.
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Stock market advice: Despite drop in share price, Avigilon still trades at high multiple to earnings
The company spends 6% of its sales on research, which lets it develop new products like its LightCatcher technology.
LightCatcher is designed for viewing colour detail in dimly lit areas, such as bars, restaurants and parking lots, or for use in criminal investigations. The company believes this ability can be a big factor in a successful investigation.
The stock has declined to $15.11 from a high of $34.40 in January 2014, but it still trades at 22.3 times next year’s forecast earnings of $0.70 a share. That’s a high multiple for a junior company in a narrow market niche where many major firms are conducting a lot of research.
We don’t recommend Avigilon. If you own the shares, we think you should sell.
Tomorrow in Best Canadian Stocks we assess Dorel Industries’ ambitious international expansion plans.
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