CMG develops tools for modeling oil recovery processes, thermal recovery, composition analysis and unconventional reservoirs. It also provides professional services, including consulting, training and research support, to clients worldwide.
CMG shares are down 55% from their all-time high, giving you a chance to buy the dip and take advantage of outsized gains when sentiment recovers. Let’s take a look at whether you should own this oversold TSX tech stock now.
Are CMG shares a good buy today?
Computer Modeling Group reported mixed second quarter (Q2) results as the software company navigates a challenging environment characterized by volatile energy markets and cautious consumer spending.
Revenue in the second fiscal quarter (ended in September) rose 2% year over year to $30.2 million. Core recurring revenue grew 13% to $20.7 million, driven by acquisitions. However, organic revenue fell 17% year over year as the oil and gas sector continued to cut spending at lower prices. Perpetual software licensing business also fell 56% as companies postponed investments in new technology.
CMG reported adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $7.6 million, down 25% year over year. Moreover, the margin has fallen from 34% to 25% over the past twelve months.
CMG attributed rising operating costs and lower revenues from its higher-margin reservoirs and manufacturing solutions businesses to lower margins. Earnings per share fell 40% to just $0.03 in the second quarter, while free cash flow fell 68% to $2 million due to higher capital expenditures.
Computer Modeling Group completed its third acquisition during the quarter, purchasing SeisWare International to strengthen its seismic software offering. It recently announced a big win with Shell for a multi-year licensing agreement for the simulation software suite, including the CoFlowTM platform. This deal represents the reward of a long-term product development relationship.
Management expects sales to pick up in the second half of the fiscal year as seasonal contract renewals kick in. The company expects organic recurring revenue to turn positive in the fourth quarter and remain positive through fiscal 2027. To finance more acquisitions and increase financial flexibility, Computer Modeling Group recently closed on a $100 million credit facility.
The board also approved a quarterly dividend of $0.01 per share, up from $0.05 last year. The company launched a share buyback program because directors believe the shares do not reflect the underlying value of the company.
While near-term headwinds persist due to weak energy markets and extended sales cycles, management expects growth to return as consumer spending normalizes.
Is this TSX tech stock undervalued?
Investors are right to be concerned about CMG’s declining profit margins, declining sales and a dividend cut. However, Bay Street estimates that the TSX technology stock will increase revenue from $127.4 million in fiscal 2026 to $247 million in fiscal 2030. During this period, free cash flow (FCF) is expected to improve from $28.5 million to $86 million.
Today, CMG pays shareholders an annual dividend of $0.04 per share, which translates into a yield of 0.8%. Considering the number of shares outstanding, CMG’s annual dividend cost is approximately $3.3 million, suggesting a payout ratio of less than 12%.
If the CMG share price advances ten times FCF, which is reasonable, it could rise 100% in the next 45 months. Analysts remain bullish on CMG, expecting it to rise 40% from current levels given consensus price targets.
#Oversold #TSX #Tech #Stocks #Buy #Hold #December