Originally published on July 28, 2014
Cimatron Ltd. (NASDAQ: CIMT) has been around for more than 30 years and is a leading provider of integrated CAD/CAM software solutions for mold, tool, and die makers as well as manufacturers of discrete parts. Cimatron sells to the automotive, aerospace, medical, consumer plastics, electronics, and other industries in 40 countries worldwide. Cimatron is ranked among the top ten CAD/CAM suppliers in every global region.
CimatronE is an integrated CAD/CAM solution for mold making, die making and manufacturing.
GibbsCAM is a state-of-the-art CAM system for programming CNC machine tools.
3D Printing Opportunity
Cimatron has strong expertise in CAD/CAM software and can leverage it to enter the 3D Printing Software space by 2015. Entry into this fast-growing industry may provide Cimatron with a source of significant future revenue growth. The next version of CimatronE will support AMF files, the format used in additive manufacturing. How big this opportunity is for Cimatron and what the impact on the company will be is unknown at this time, so it is important to strongly discount any projections of growth from this area.
Valuation by Method
1. On a Napkin
With a projected earnings growth rate of 10% for the next 5 years and an EPS estimate of $0.51 for 2014, we would see a EPS 2019 of $0.82. Applying the current P/E of 12.22 to this number would give us a stock price of $10.04, discounted by 8.65% to get a Target Price of $6.63.
2. Peer Comparison
Cimatron's peers could be considered to include Dassault Systems (OTCPK:DASTF) which trades at a P/S of 5.76 and Autodesk (NASDAQ:ADSK) which trades at a P/S of 5.48. Applying the lower of these two multiples to Cimatron would provide a target price of $24.00. By P/E Dassault Systems which is negative earnings cannot be counted by Autodesk trades at a forward P/E of 36.79, applying this to CIMT forward earning estimate of 0.58 would give us a target price of $21.34.
3. Industry Comparison
The Technical & System Software industry has an average P/E ratio of 30.9 which if applied to CIMT would yield a target price of $ 15.76.
4. Yahoo Estimates Discounted Cash Flow Analysis
Using the estimates provided from Yahoo Finance for growth and adding the large net cash balance of the company, shares of CIMT would be fairly valued at $11.64.
5. Low Estimates Discounted Cash Flow Analysis
Using the lowest estimates only and not adding in the net cash balance, I would find the shares of CIMT fairly valued at $6.36.
As you can see from the above calculations, CIMT is fairly undervalued compared to two of its CAD/CAM Peers and to the industry as a whole. The company has a strong balance sheet, is fast growing, and has great opportunities for growth by entering the Additive Manufacturing Software field with CimatronE version 12 and continuing its strong execution. Right now the stock price is depressed by current events and a larger down trend micro-cap stocks, but I would predict the future holds a rebound for this little stock. My prediction is that the stock price will reach between $6.36 and $24.00 in the next 12 months; I have a target price of $11.64. Two analysts placed price targets for Cimatron, Chardan Capital Markets ($10) and Roth Capital ($9). At the current price level (July 28th) of $5.85, this stock has the potential to double.
Disclosure: The author is long CIMT.
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