Q: What are your thoughts on E.TO during this macro environment. Business is set to spend less and looking to generate income this fiscal year. Thank you.
5i Research Answer:
We think E is a decent company, but it is small, and economically cyclical. It is also expensive on current expected earnings (25x). It has a bit of debt (1.5x cash flow) and earnings are expected to double this year (hence the valuation). Insiders own 30%. With no dividend, and economic risk, we do not think it would be a great stock in the current very uncertain environment. One offset here is that it does have a lot of energy sector business. If higher oil prices are sustained this could be a tailwind.