$CTG - A leading provider of digital transformation solutions with strong EPS growth

Summary Digital transformation is a top priority for many businesses, and this has been accelerated due to COVID-19 This is a relatively small company, so they are not competing with major digital transformation companies, but from what I’ve seen they are serving the low-mid tier business market very well which is typically in significant need of digital transformation Strong growth in EPS and if they continue to expand their high-margin solutions business they could be in a great position Company Overview CTG is a leading provider of digital transformation IT solutions and services. We serve as a catalyst for digital transformation in our client organizations, accelerating their project momentum and achievement of desired technology and business outcomes with the speed and confidence needed for our fast-changing world. Market COVID-19 has created an urgent need for organizations to accelerate their digitalization efforts. (Gartner) The Covid-19 pandemic dramatically accelerated technology adoption across all industries. According to one survey, 77% of CEOs reported that the pandemic sped up their companies’ digital transformation plans HBR 82% of CEOs plan to increase investment in digital capabilities, yet relatively few organizations have embarked upon comprehensive top-to-bottom digital transformation. (Gartner) Letter to Shareholders, March 10 Key points to highlight GAAP and nonGAAP net income grew 85% and 34%, respectively, year-over-year Revenue from Solutions grew 5.4% to 37.8% of total revenue, while the gross profit margin on our Solutions business grew 5.7% to 27.3% - They see this as a strategic priority moving forward and aim to have 50%+ of their overall revenue come from solution-based sales In March 2020, we completed our acquisition of StarDust, a small but leading digital testing and quality assurance company with operations in France and Canada. This strategic transaction was immediately accretive to our operating results, and supported our strategy of expanding Link Feb, 24th Press release - CTG Accelerates Investments in Digital Transformation Solutions and Services Breakthrough digital transformation offerings. CTG is growing its portfolio of digital transformation solutions, underpinned by the Company’s leadership in Agile and DevSecOps, Internet of Things (IoT), Intelligent Automation, Data and Analytics, Cloud, and Automated Testing. Link Insider Buying / Selling There has bene strong insider buying over the last few months. This is usually a good sign (link) Financials and Metrics P/E is 16.8 – A quick look at the IT Services Industry, most companies have a P/E ratio greater than 17 with an average P/E ratio of around 26. P/FCF is 4.67 - A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. EPS is 0.56 which isn’t great in itself, however the 2-year trend is strong Price to Sales is 0.35 - A low ratio could imply the stock is undervalued while a ratio that is higher-than-average could indicate that the stock is overvalued. TLDR Built a list of potential micro cap stocks to invest in and CTG stood out (still investigating the other ones – criteria and approach for screening can be found here) Business, especially ones further behind in digital transformation, are making digital transformation a priority in the net few years CTG is a leading provider of digital transformation IT solutions and services that has seen strong EPS growth and is investing heavily in their high-margin solutions business With strong fundamentals for a micro cap stock this could be a decent investment Disclaimer: This is not investment advice, do your own research!

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$CTG - A leading provider of digital transformation solutions with strong EPS growth

bullish

Summary

  • Digital transformation is a top priority for many businesses, and this has been accelerated due to COVID-19
  • This is a relatively small company, so they are not competing with major digital transformation companies, but from what I’ve seen they are serving the low-mid tier business market very well which is typically in significant need of digital transformation
  • Strong growth in EPS and if they continue to expand their high-margin solutions business they could be in a great position

Company Overview

CTG is a leading provider of digital transformation IT solutions and services. We serve as a catalyst for digital transformation in our client organizations, accelerating their project momentum and achievement of desired technology and business outcomes with the speed and confidence needed for our fast-changing world.

Market

  • COVID-19 has created an urgent need for organizations to accelerate their digitalization efforts. (Gartner)
  • The Covid-19 pandemic dramatically accelerated technology adoption across all industries. According to one survey, 77% of CEOs reported that the pandemic sped up their companies’ digital transformation plans HBR
  • 82% of CEOs plan to increase investment in digital capabilities, yet relatively few organizations have embarked upon comprehensive top-to-bottom digital transformation. (Gartner)

Letter to Shareholders, March 10

Key points to highlight

  • GAAP and nonGAAP net income grew 85% and 34%, respectively, year-over-year
  • Revenue from Solutions grew 5.4% to 37.8% of total revenue, while the gross profit margin on our Solutions business grew 5.7% to 27.3% - They see this as a strategic priority moving forward and aim to have 50%+ of their overall revenue come from solution-based sales
  • In March 2020, we completed our acquisition of StarDust, a small but leading digital testing and quality assurance company with operations in France and Canada. This strategic transaction was immediately accretive to our operating results, and supported our strategy of expanding

Link

 

Feb, 24th Press release - CTG Accelerates Investments in Digital Transformation Solutions and Services

Breakthrough digital transformation offerings. CTG is growing its portfolio of digital transformation solutions, underpinned by the Company’s leadership in Agile and DevSecOps, Internet of Things (IoT), Intelligent Automation, Data and Analytics, Cloud, and Automated Testing. Link

 

Insider Buying / Selling

There has bene strong insider buying over the last few months. This is usually a good sign (link)

 

Financials and Metrics

  • P/E is 16.8 – A quick look at the IT Services Industry, most companies have a P/E ratio greater than 17 with an average P/E ratio of around 26.
  • P/FCF is 4.67 - A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap.
  • EPS is 0.56 which isn’t great in itself, however the 2-year trend is strong
  • Price to Sales is 0.35 - A low ratio could imply the stock is undervalued while a ratio that is higher-than-average could indicate that the stock is overvalued.

TLDR

  • Built a list of potential micro cap stocks to invest in and CTG stood out (still investigating the other ones – criteria and approach for screening can be found here)
  • Business, especially ones further behind in digital transformation, are making digital transformation a priority in the net few years
  • CTG is a leading provider of digital transformation IT solutions and services that has seen strong EPS growth and is investing heavily in their high-margin solutions business
  • With strong fundamentals for a micro cap stock this could be a decent investment

Disclaimer: This is not investment advice, do your own research!

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read-time
3 min

11.06

Target Price

7/ 10

Confidence

1-2 Months

Timeframe
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