Skip to main content

What are we looking for?

Canadian companies with high economic performance, positive growth and that are trading below their historical valuation multiples.

The screen

We have screened our Canadian universe (about 1,650 stocks) with the following criteria:

  • An economic performance index, or EPI (return on capital divided by cost of capital) above 1.5. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
  • A return on capital of 10 per cent or higher;
  • A positive NOPAT (net operating profit after tax) growth over 12 and 24 months;
  • A positive EVA (economic value-added) growth over 12 and 24 months;
  • A price-to-adjusted intrinsic value of 1.0 or lower. (The adjusted intrinsic value is our 12-month target price adjusted to the stock’s historical premium or discount against the non-adjusted intrinsic value. (For example, we calculate an intrinsic value of $80 for company X, but historically, this stock has traded, on average, $20 above its intrinsic value. The adjusted intrinsic value will thus be $100, which represents the intrinsic value plus average historical spread);
  • An annualized dividend growth rate of 5 per cent or higher over one, two, three and four years.

More about StockPointer

StockPointer is a fundamental analysis tool based on an EVA (economic value added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 8,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.

What did we find?

Only 13 Canadian companies make the cut. Dollarama Inc., which is set to release its second-quarter earnings Thursday morning, comes up as the company generating the highest economic performance with an EPI of 4.5. Airboss of America Corp., a manufacturer of rubber compounds for the transportation, defence and industrial markets, is the stock trading at the steepest discount to its adjusted intrinsic value. The stock lost about 45 per cent of its value since July, 2015, and is currently trading close to its 52-week low recorded earlier in June.

The only two banks that show up in this list are Canadian Imperial Bank of Commerce and Toronto-Dominion Bank, and they also offer the highest dividend yields within the group. They trade at price-to-adjusted intrinsic value ratios of 0.9 and 1.0 respectively, meaning they are not significantly overvalued or undervalued compared with their own historical valuation multiples.

Investors are advised to do additional research prior to investing in any of the companies mentioned.

Jean-Didier Lapointe is a financial analyst for StockPointer at Inovestor Inc.

Canadian companies with high economic performance