CJT is currently trading at a high trailing PE of 32.12x, considerably outstripping the 22.36x average multiple of the Logistics. However, a static multiple such as PE is never conclusive on its own. This is because there are many company-specific factors like future prospects and capital structure, which are unaccounted for. In this article, I am going to take you through some key things to consider in order to identify which multiple is the most relevant for the fast-growing company, CJT. Let’s dive in.
Is CJT making any money?
PE is only used when a company is profitable, such as CJT. This is because using PE to value an unprofitable business is flawed since the company has negative earnings (this will create a negative ratio). Companies like this are often valued based off other relevant factors, using multiples like P/S (price-to-sales) or P/FCF (price-to-free-cash-flow) depending on the business characteristics. Negative earnings have featured on CJT’s bottom line previously, until 2016 saw a breakeven period with earnings of CA$2.40m, followed by the most recent bottom-line of CA$25.60m. As earnings forecasts indicate the positive trend will continue, the PE multiple can be an acceptable tool to assess the CJT’s value, but let’s see if there is a better alternative.
Does CJT owe a lot of money?
The company’s debt-to-equity ratio is greater than 2, meaning that creditors provide more than two thirds of the company’s capital. This means that if the company were to go bankrupt, equity investors have a lower claim on assets than debt providers that is owed the lion’s share of assets. You may be wondering how debt impacts an equity valuation. Well, the company’s share price theoretically represents the value of its equity portion only. However, it’s crucial to account for debt as well, since debt also contributes to the company’s earnings capacity and risk. By using enterprise value (EV) rather than current share price, the multiple incorporates debt, allowing us to recognise both sources of funding. This is frequently used in the EV/EBITDA multiple.
CJT’s EV/EBITDA = CA$1.28b / CA$0 = 12.27x
Does CJT have a fast-growing outlook?
Yes. If analyst predictions are right, the company’s earnings are forecasted to grow by 25.44% every year for the next 5 years. However, current earnings don’t reflect any of this potential growth, which is a setback for trailing multiples. Buying a stock means you’re entitled to future earnings, not the past. Therefore, it’s more useful to focus on what you’ll receive. To account for this growth we can use the one-year analyst-consensus future EBITDA (this is a “forward” multiple).
CJT’s forward EV/EBITDA = CA$1.28b /CA$122.75m = 10.4x
Looking at relative valuation alone does not give you a complete picture of an investment. There are many important factors I have not taken into account in this article. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for ’s future growth? Take a look at our free research report of analyst consensus for ’s outlook.
- Past Track Record: Has been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ‘s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.