Flight simulation and training company CAE (CAE Stock Quote, Chart TSX:CAE) has been on a heck of a run in 2019, posting gains of 40 per cent, but the stock looks overbought, says investment manager Michael Sprung, who says shareholders could do worse than taking a bit off the table right now.
Montreal-based CAE has been a market favourite this year, with investors seeing good long-term prospects for the company that has the largest market share worldwide in flight training. The stock has been a strong performer over the past half-decade but its trajectory slanted upwards in 2019 and then really took off with its latest earnings report in May. There the company posted a 49-per-cent year-over-year increase in profits at 46 cents per share, while revenue grew from $720.9 million a year ago to $1.022 billion.
Analysts were expecting 43 cents per share in profits and $945.2 million in revenue. Sprung says that CAE is well-positioned to take advantage of the growing need for trained pilots, as worldwide air travel is expected to pick up just as a large cohort of pilots is expected to retire.
“People often ask me, can you find a good company that’s from Quebec and CAE is an outstanding example. It’s one that we owned quite broadly and I own it myself,” said Sprung to BNN Bloomberg on Monday. “But it has run to the extent where I’m beginning to consider whether it would be prudent to take some profits.”
“I don’t think that I would sell out the position entirely because I think CAE is in an extremely well-advantaged position, whether it be from the military or particularly from the civil aviation field where we’re going to see much more turnover and replacement of vehicles in the air and that’s going to create a whole new demand for pilot training,” he says.
“The multiple is just getting a little bit stretched here,” he says. “Don’t try to squeeze that last dollar. It never hurts to take a profit.”